As filed with the Securities and Exchange Commission on June 1, 2018
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EverQuote, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 7370 | 26-3101161 | ||
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification No.) |
210 Broadway
Cambridge, MA 02139
(855) 522-3444
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Seth Birnbaum
President and Chief Executive Officer
EverQuote, Inc.
210 Broadway
Cambridge, Massachusetts 02139
(855) 522-3444
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
David A. Westenberg, Esq.
Jason L. Kropp, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Telephone: (617) 526-6000 Telecopy: (617) 526-5000 |
David Mason, Esq.
General Counsel and Secretary EverQuote, Inc. 210 Broadway Cambridge, Massachusetts 02139 Telephone: (855) 522-3444 |
Marc D. Jaffe, Esq.
Evan G. Smith, Esq.
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☐ | |||
(Do not check if a smaller reporting company) | Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities To Be Registered |
Proposed
Maximum Aggregate Offering Price(1) |
Amount of
Registration Fee(2) |
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Class A common stock, $0.001 par value per share |
$75,000,000 | $9,338 | ||
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(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. |
(2) | Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated June 1, 2018
Preliminary Prospectus
shares
Class A Common Stock
This is an initial public offering of Class A common stock by EverQuote, Inc. EverQuote is offering shares of Class A common stock. The selling stockholders identified in this prospectus are offering an additional shares. EverQuote will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for our Class A common stock. The estimated initial public offering price is between $ and $ per share.
We have two classes of voting common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to one vote, and each share of Class B common stock is entitled to ten votes. Each outstanding share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value and whether voluntary or involuntary or by operation of law, except for certain exceptions and permitted transfers described in our restated certificate of incorporation, and each outstanding share of Class B common stock held by a stockholder who is a natural person, or held by the permitted transferees of such stockholder, will convert automatically into one share of Class A common stock nine months after the death or incapacity of such stockholder. Upon the completion of this offering, the holders of the outstanding shares of Class B common stock will collectively hold approximately % of the voting power of our outstanding capital stock, and entities affiliated with Link Ventures will hold in the aggregate approximately % of the voting power of our outstanding capital stock. Upon completion of this offering, we will be a controlled company as defined under the New York Stock Exchange listing rules.
We intend to apply to list our Class A common stock on the New York Stock Exchange under the symbol EVER.
Per share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions |
$ | $ | ||||||
Proceeds to EverQuote, before expenses |
$ | $ | ||||||
Proceeds to selling stockholders, before expenses |
$ | $ |
EverQuote and the selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to and additional shares of Class A common stock, respectively.
Investing in our Class A common stock involves a high degree of risk. See Risk factors beginning on page 15.
As an emerging growth company, we are eligible for reduced public company reporting requirements. See Prospectus SummaryImplications of Being an Emerging Growth Company.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on or about , 2018.
J.P. Morgan | BofA Merrill Lynch |
Canaccord Genuity | JMP Securities | Needham & Company | ||
Oppenheimer & Co. | Raymond James | William Blair |
, 2018
In a 2017 survey, consumers who found insurance through EverQuote saved an average of $536. EVERQUOTE The Largest Online Insurance Marketplace in the U.S. Sherry S.Oregon Saved $600 Truman H. Maryland Saved $696 Randal G.Indiana Saved $425 Campbell M.Virgina Saved$540 Allen C. Florida Saved $432
Helping Consumers Project Their Most Valuable Assets EVERQUOTE Home Insurance Townhome Built 1919 1,400 Sqft 2 Bed/1 Berth Estimated value $733,000 EVERQUOTE Life Insurance Age 35 Personal Married 4-Yr Degree Self-Employed Health Non-Smoker BMI: 21 EVERQUOTE Auto Insurance 2017 Nissan Leaf 90210 2 Drivers Street Parking 6K miles/year Leased Typical Coverage $100k/$300k Injury
With a Comprehensive Networks of Insurance Providers Amber R. Agent, West Virginia Everquote has enable us to connect With consumers who are truly intenful. Ladson M. Agent, South Carolina Everquote has given me The first start I needed, and currently my agency has Axceeded all company set goals and expectations.
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F-1 |
You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus that we file with the Securities and Exchange Commission. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date regardless of the time of delivery of this prospectus or of any sale of our Class A common stock.
For investors outside the United States: Neither we, the selling stockholders nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside of the United States.
This summary highlights information appearing elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes appearing at the end of this prospectus, before making any investment decision. Unless the context otherwise requires, we use the terms EverQuote the company, we, us and our in this prospectus to refer to EverQuote, Inc.
Our Business
EverQuote makes insurance shopping easy, efficient and personal, saving consumers and insurance providers time and money.
We operate the largest online marketplace for insurance shopping in the United States. Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. With over 10 million consumer visits per month, our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests.
Consumers may view insurance as a simple commodity with standard pricing. However, finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.
Insurance providers operate in a highly competitive and regulated industry and typically specialize on pre-determined subsets of consumers. As a result, not every consumer is a good match for every provider, and providers struggle to efficiently reach the segments that are most desirable for their business models. Traditional offline and online advertising channels reach broad audiences but lack the fine-grained consumer acquisition capabilities needed for optimally matching consumers to specific insurance products. We connect providers to a large volume of high-intent, pre-validated consumer referrals that match the insurers specific requirements. The transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance providers to evaluate the performance of their marketing spend on our platform and manage their own return on investment. We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback.
The EverQuote platform is powered by data science. Our rich data assets and proprietary algorithms efficiently attract consumers, match them with relevant insurance providers and drive our overall business model.
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These assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018. We utilize our data assets throughout our business, from advertising and consumer acquisition to the innovation of new consumer and provider experiences, as well as to guide our strategic direction. As our data assets grow, our algorithms become more powerful. We believe our data science capabilities give us a significant competitive advantage.
Our marketplace benefits from significant network effects. As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs, leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.
We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. Our revenue grew from $45.6 million in 2013 to $126.2 million in 2017, representing a compound annual growth rate of 29.0%. In 2016 and 2017, our total revenue was $122.8 million and $126.2 million, respectively, representing year-over-year growth of 2.8%. In the three months ended March 31, 2017 and 2018, our revenue was $31.8 million and $40.7 million, respectively, representing quarter-over-quarter growth of 28.3%. We had a net loss of $0.9 million in 2016 and a net loss of $5.1 million in 2017, and had $3.0 million and $(1.5) million in adjusted EBITDA in 2016 and 2017, respectively. We had net losses of $1.6 million and $1.3 million for the three months ended March 31, 2017 and 2018, respectively, and had $(0.7) million and $(0.4) million in adjusted EBITDA for the three months ended March 31, 2017 and 2018, respectively. See the section titled Selected Financial and Other DataNon-GAAP Financial Measures for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the United States, or GAAP.
Industry Overview
Insurance is one of the largest segments of the United States economy and plays a vital role in securing the well-being of consumers.
Insurance marketing spend is large and evolving. To capture new policies and retain existing customers, insurance providers advertise across a broad range of online and offline marketing channels, devoting significant resources to sales and distribution. Separately, the internet has become increasingly influential in consumer insurance shopping, with more than 70% of insurance consumers shopping online, according to a 2015 comScore survey. While insurance providers are reallocating marketing spend from traditional media sources to online media channels, we believe the shift of marketing budgets continues to lag the shift in consumer behavior. We estimate that we have an immediate opportunity in excess of $2.6 billion per year, with a total addressable market over the long term of $120 billion annually.
Insurance products are complex and highly regulated . While consumers may perceive insurance as a commodity, it is complex and must be configured to match each consumers particular circumstances. In the United States, regulatory requirements vary state by state, with each state having different actuarial standards, statutory requirements and regulations, and there are numerous types and levels of coverage, bundling and discounts available from each provider. These complexities make it challenging for consumers to compare and choose from among the hundreds of available insurance providers and coverage combinations.
Insurance shopping is being enabled by new digital tools. We expect that the ongoing shift to online insurance shopping by consumers and the increasing digitization of insurance risk assessment and workflows will enable more personal, end-to-end shopping experiences, products and services.
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Insurance agents are an essential and growing part of the industry landscape. Despite the trend toward online shopping, insurance agents play an essential role in the insurance buying process. According to a 2015 comScore survey, while more than 70% of insurance consumers shop online, 80% of policies purchased are closed offline by insurance agents, and consumers frequently cited the desire to speak to an agent as the top reason for not buying online. We estimate there are approximately 100,000 agencies in the United States who sell insurance products across the auto, home, life, commercial and renters insurance markets. The number of insurance agents continues to grow, with employment in the U.S. insurance sales agent and broker sector increasing from 318,000 to 385,000 between 2010 and 2016, as reported by the Bureau of Labor Statistics.
Market Opportunity
The challenges faced in the $120 billion non-health insurance sales, marketing and distribution market create a significant opportunity for companies that can efficiently align consumers and providers. These challenges include:
Misalignment of providers and consumers creates an inefficient match between supply and demand. Due to pricing and regulatory complexity, insurance providers typically specialize on pre-determined sub-sets of consumers. At the same time, consumers struggle to make informed buying decisions due to the large number of providers, breadth of insurance products and services available, and opaque pricing and coverage options. The inability for insurance providers to attract only those consumers who match their optimal risk profiles, combined with the lack of comprehensive information for consumers, creates a supply and demand misalignment.
Complex, fragmented and opaque market for consumers. Selecting the right insurance provider is challenging for consumers as there are more than 1,500 insurance carriers in the United States, each with different risk-assessment requirements, product offerings and pricing. Moreover, pricing for the same coverage can vary widely from one provider to another, and even across different sales channels within the same provider. Consumers have distinct attributes and insurance needs and historically have lacked access to comprehensive tools for identifying and connecting with the right providers.
Inefficient advertising channels for insurance providers. Traditional advertising channels, such as television, are inefficient for insurance providers and lack the fine-grained controls for consumer targeting and the ability to quickly and selectively adjust cost-per-acquisition and align advertising spend with loss tolerance. In addition, traditional channels lack the ability to identify and segment providers existing customers, limiting the utility of these channels for retention.
Our Solution
Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. Our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money.
Proprietary, data-driven technology platform.
Our platform efficiently attracts consumers shopping for insurance to our websites and mobile applications and matches consumers with relevant providers for streamlined quoting.
| Bid: We advertise to consumers under the EverQuote brand across hundreds of online channels including internet search, email, social media and display advertising. Our algorithms efficiently manage over 175 million advertising impressions per day, utilizing insights from our proprietary data assets and A/B testing to optimize bids, advertising creatives and placements across channels. |
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| Quote request: At quote request, consumers submit data required by providers for matching, quoting and binding. This information is securely exchanged with insurance providers at the moment of referral, enabling providers to produce quotes quickly, with minimal additional steps and information needs. |
| Bind: We combine consumer-submitted information and our internal data with proprietary machine learning algorithms to optimize matching and bind rates for consumers and insurance providers. |
| Retention: Our platform enables insurance providers to identify and run custom campaigns to help retain their existing customers. |
We engage with consumers through user-friendly and easy-to-navigate websites that make shopping for insurance easy, fast and cost-effective. We also engage with consumers in innovative ways, such as through EverDrive, our social safe-driving mobile app.
Insurance carriers and agents connect with our marketplace through EverQuote Pro, our web-based provider portal. EverQuote Pro provides transparent, secure access to marketplace data regarding consumer type, volume and referral pricing, along with sophisticated campaign management tools for targeting consumers based on a wide array of attributes.
Key benefits for consumers
We offer consumers a streamlined and personalized insurance buying experience, providing the following key benefits:
| Saving time and money |
| Single starting point for a comprehensive insurance shopping experience |
| Results-driven insurance shopping destination efficiently matching consumers with relevant options |
| Seamless online or offline handoff to quote or bind a policy |
Key benefits for insurance providers
We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback. We offer insurance providers the following key benefits:
| Access to a high volume of in-market online consumers |
| Acquisition of consumers that match providers specific criteria |
| High return on investment through efficient acquisition of desired consumers |
| High quote and bind rates for referrals through broad data integration with providers |
| Flexible advertising channel |
Our Strengths
We believe that our competitive advantages are based on the following key strengths:
| Results-driven marketplace for consumers . We efficiently match and connect consumers with relevant insurance policy options for their specific circumstances and needs, decreasing the time needed to compare providers and increasing the chance of purchasing insurance. We believe that offering a personalized, comprehensive and provider-inclusive consumer experience has helped us to become the leading marketplace for online insurance shopping, as measured by online visits. |
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| Disruptive data-driven approach. Our marketplace is powered by a proprietary data and technology platform that efficiently attracts insurance shoppers from a diverse and growing array of online sources, increases the bind rate for consumers and drives down the cost of acquisition for providers. As of April 30, 2018, we employed over 130 data scientists, analysts and engineers who continually leverage our growing data assets to improve our capabilities. |
| Powerful network effects . As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs, leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data. |
| Ability to expand with significant operating leverage . We have leveraged our data assets, technology platform and engineering and data science capabilities, along with our growing audience of consumers and network of insurance providers, to expand our platform from the auto insurance market into the home and life insurance markets. We have entered these new verticals with only a modest increase in headcount, and we have already achieved attractive economics and high growth. |
| Flexible cost structure . Our largest expense, advertising, is variable and can be quickly adjusted to market conditions, including economic and industry cycles. |
| Founder-led management team with culture of innovation and performance . Led by our founders, we have built a team focused on data-driven innovation, which remains at the heart of our culture. We have also rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. |
Our Growth Strategies
Our core mission is to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We leverage technology and data to empower consumers with better information and
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options, enabling them to identify and reduce risky behaviors, lower their insurance costs and lead safer lives. Ultimately, we seek to improve the way consumers understand and manage their personal risks. We are working to build the largest and most trusted online insurance marketplace in the world. To achieve this goal, we intend to continue to grow our business by pursuing the following strategies:
| Attract more consumers to our marketplace. We plan to expand the number of consumers reaching our marketplace through existing channels by leveraging the superior features and growing data assets of our platform. In addition, we plan to launch new marketing channels, such as online video. |
| Add more insurance providers and increase revenue per provider. We plan to grow the number of insurance providers on our platform by demonstrating the value proposition of our marketplace as an efficient, scalable customer acquisition channel and adding new provider-facing features. We believe we can also increase the number of referrals per quote request while maintaining or increasing the bind rate per quote request, which would allow us to increase our revenue at limited marginal cost. We also plan to expand revenue per provider by increasing consumer traffic and quote request volume, adding verticals and innovating advertiser products and services. |
| Expand and deepen consumer engagement. We plan to innovate with new consumer offerings and enhanced personalization to deepen consumer engagement. We plan to provide broader and more meaningful consumer experiences, leading to increased return visits, higher frequency of interaction and greater revenue per user. |
| Invest in our technology platform and people. We plan to continue to invest in our data and technology platform by growing our data science and engineering team, enabling us to improve the breadth and efficiency of our marketplace for consumers and providers. |
| Launch new verticals on our platform. We plan to expand into additional vertical markets such as renters and commercial insurance to become a leading end-to-end marketplace for consumers and providers. With our entry into the home and life insurance verticals, we have demonstrated our ability to efficiently expand into new markets by leveraging our platform. |
| Enhance our brand awareness. We believe we have significant opportunities to increase our brand awareness. Historically, our marketing efforts have been focused on algorithmic consumer acquisition rather than brand marketing. We plan to further expand our marketing channels to drive greater brand recognition and attract a broader consumer audience. We believe a stronger brand may drive even greater efficiencies in our marketplace. |
| Grow internationally. We plan to selectively launch our offerings in international markets over time. We expect to focus our efforts in international markets with dynamics similar to the United States. We believe we can expand into new geographies with limited additional development costs due to the operating leverage embedded in our business. |
Risks Associated with Our Business
You should consider carefully the risks described under the Risk Factors section beginning on page 15 and elsewhere in this prospectus. These risks, which include the following, could materially and adversely affect our business, financial condition, operating results, cash flow and prospects, which could cause the trading price of our Class A common stock to decline and could result in a partial or total loss of your investment:
| Our business is dependent on our relationships with insurance providers with no long-term contractual commitments. If insurance providers stop purchasing consumer referrals from us, or if we are unable to establish and maintain new relationships with insurance providers, our business, results of operations and financial condition could be materially adversely affected. |
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| We compete with other media for advertising spend from our insurance provider customers, and if we are unable to maintain or increase our share of the advertising spend of our insurance provider customers, our business could be harmed. |
| If consumers do not find value in our services or do not like the consumer experience on our platform, the number of referrals in our marketplace may decline, and our business, results of operations and financial condition could be materially adversely affected. |
| We rely on the data provided to us by consumers and insurance providers to improve our product and service offerings, and if we are unable to maintain or grow such data we may be unable to provide consumers with a shopping experience that is relevant, efficient and effective, which could adversely affect our business. |
| A significant portion of our revenue in recent periods was derived from one customer, and our results of operations could be adversely affected and stockholder value harmed if we lose business from this customer. |
| We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites, and if we are unable to attract consumers and convert them into quote requests in a cost-effective manner, our business and financial results may be harmed. |
| If our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or if our sites are not accessible or treated disadvantageously by internet service providers, our business may be substantially harmed. |
| If we are unable to develop new offerings, achieve increased consumer adoption of those offerings or penetrate new vertical markets, our business and financial results could be materially adversely affected. |
| Our business is substantially dependent on revenue from automotive insurance providers and subject to risks related to automotive insurance and the larger automotive industry. Our business may also be adversely affected by downturns in the home and life insurance industries. |
| We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results. |
| Insurance providers in our marketplace may not provide competitive levels of service to consumers, which could materially adversely affect our brand and business and our ability to attract consumers. |
| We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed. |
| We have incurred net losses in the past and we may generate losses in the future. |
| We expect our results of operations to fluctuate on a quarterly and annual basis. |
| Our past growth may not be indicative of our future growth, and our revenue growth rate may decline in the future. |
| The dual-class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our directors, executive officers and entities affiliated with Link Ventures, which will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. |
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Our Status as a Controlled Company
Upon completion of this offering, entities affiliated with Link Ventures will hold, in the aggregate, approximately % of the voting power of our outstanding common stock (or % if the underwriters option to purchase additional shares of our Class A common stock is exercised in full). Because more than 50% of our voting power will be held by entities affiliated with Link Ventures upon completion of this offering, we will be a controlled company as defined under the New York Stock Exchange listing rules and, as such, will be exempt from certain corporate governance requirements that would otherwise be applicable under New York Stock Exchange rules. Following this offering, we intend to initially avail ourselves of certain of these exemptions and, for so long as we qualify as a controlled company, we will maintain the option to utilize from time to time some or all of these exemptions.
Our Corporate Information
We were incorporated in Delaware on August 1, 2008, under the name AdHarmonics, Inc., and changed our name to EverQuote, Inc. on November 17, 2014. Our principal executive offices are located at 210 Broadway, Cambridge, Massachusetts 02139, and our telephone number at that address is (855) 522-3444. Our website address is www.everquote.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.
EverQuote, our logo, and other trademarks or trade names of EverQuote, Inc. appearing in this prospectus are our property. This prospectus also contains trademarks and trade names of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.
Implications of Being an Emerging Growth Company
We qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including:
| reduced disclosure about our executive compensation arrangements; |
| exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments; and |
| exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. |
We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1 billion of non-convertible debt securities over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting obligations in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
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In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.
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Class A common stock offered by us |
shares |
Class A common stock offered by the selling stockholders |
shares |
Class A common stock to be outstanding after this offering |
shares |
Class B common stock to be outstanding after this offering |
shares |
Total Class A common stock and Class B common stock to be outstanding after this offering |
shares |
Underwriters option to purchase additional shares of Class A common stock from us |
shares |
Underwriters option to purchase additional shares of Class A common stock from the selling stockholders |
shares |
Use of proceeds |
We estimate that our net proceeds from the sale of our Class A common stock in this offering will be approximately $ , assuming an initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders. |
The principal purposes of this offering are to create a public market for the Class A common stock, facilitate access to the public equity markets, increase our visibility in the marketplace and obtain additional capital. |
We intend to use our net proceeds from the sale of shares in this offering for working capital, capital expenditures and general corporate purposes, which could include potential strategic transactions and international expansion. See Use of Proceeds. |
Voting rights |
We have two classes of voting common stock, Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes. |
Holders of Class A common stock and Class B common stock vote together as a single class on all matters (including the election of |
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directors) submitted to a vote of stockholders, unless otherwise required by law. Upon the completion of this offering, the holders of the outstanding shares of Class B common stock will collectively hold approximately % of the voting power of our outstanding capital stock, and entities affiliated with Link Ventures will hold in the aggregate approximately % of the voting power of our outstanding capital stock. As a result, the holders of the outstanding shares of Class B common stock will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. |
Dividend policy |
We do not anticipate declaring or paying any cash dividends on our capital stock in the foreseeable future. See Dividend Policy. |
Risk factors |
You should read the Risk Factors section beginning on page 15 and the other information included in this prospectus for a discussion of factors to consider before deciding to invest in shares of our Class A common stock. |
Proposed New York Stock Exchange symbol |
EVER |
The number of shares of Class A common stock and Class B common stock to be outstanding after this offering is based on 20,550 shares of Class A common stock outstanding as of April 30, 2018 and shares of Class B common stock outstanding as of April 30, 2018 (assuming the automatic conversion of all outstanding shares of preferred stock into an aggregate of shares of Class B common stock upon the completion of this offering), and excludes:
| 72,615 shares of Class A common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of April 30, 2018, at a weighted-average exercise price of $56.74 per share (which does not include options to purchase an aggregate of 106,500 shares of Class A common stock, at an exercise price of $83.34 per share, that were granted subsequent to April 30, 2018); |
| 343,841 shares of Class B common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of April 30, 2018, at a weighted-average exercise price of $39.18 per share; |
| 30,312 shares of Class B common stock issuable upon the vesting of restricted stock units outstanding under our 2008 Stock Incentive Plan as of April 30, 2018; |
| 182,703 shares of Class A common stock reserved for future issuance under our 2008 Stock Incentive Plan as of April 30, 2018 (which does not account for options to purchase an aggregate of 106,500 shares of Class A common stock and 12,998 shares of Class A common stock issuable upon the vesting of restricted stock units that were granted subsequent to April 30, 2018); and |
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shares of Class A common stock that will become available for issuance under our 2018 Equity Incentive Plan in connection with this offering , of which we expect to grant restricted stock units with respect to an aggregate of 219,750 shares to certain of our employees and restricted stock units with respect to an aggregate of shares to certain of our non-employee directors, assuming |
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an initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, in each case pursuant to grants approved by our board of directors in May 2018 to be effective as of immediately prior to the commencement of trading of our Class A common stock on the New York Stock Exchange. |
In addition, the number of shares of Class A common stock available for issuance under the 2018 Equity Incentive Plan upon the closing of this offering will be subject to automatic annual increases through in accordance with the terms of such plan.
Except as otherwise noted, all information in this prospectus assumes:
| the automatic conversion of all outstanding shares of preferred stock into an aggregate of shares of Class B common stock upon the closing of this offering; |
| the automatic conversion of shares of Class B common stock into an equivalent number of shares of Class A common stock upon their sale by the selling stockholders at the closing of this offering; |
| no exercise of the outstanding options described above; |
| no exercise by the underwriters of their option to purchase additional shares from us or the selling stockholders; and |
| the filing and effectiveness of our restated certificate of incorporation and the adoption of our amended and restated bylaws upon the closing of this offering. |
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SUMMARY FINANCIAL AND OTHER DATA
The following table presents summary financial and other data for our business for the periods indicated. The summary statements of operations data presented below for the years ended December 31, 2016 and 2017 have been derived from our audited financial statements appearing at the end of this prospectus. The summary statement of operations data presented below for the three months ended March 31, 2017 and 2018 and the summary balance sheet data as of March 31, 2018 have been derived from our unaudited condensed financial statements appearing at the end of this prospectus and have been prepared on a consistent basis with our audited financial statements. In the opinion of management, the unaudited data reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the financial information in those statements. Our historical results are not necessarily indicative of the results to be expected in the future. You should read this summary financial and other data in conjunction with the sections entitled Selected Financial and Other Data and Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes appearing at the end of this prospectus.
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Statement of Operations Data: |
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Revenue |
$ | 122,778 | $ | 126,242 | $ | 31,752 | $ | 40,730 | ||||||||
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Cost and operating expenses: |
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Cost of revenue |
5,888 | 7,745 | 1,736 | 2,615 | ||||||||||||
Sales and marketing |
105,820 | 109,473 | 28,427 | 35,023 | ||||||||||||
Research and development |
6,585 | 9,194 | 2,131 | 2,614 | ||||||||||||
General and administrative |
4,894 | 4,519 | 1,009 | 1,713 | ||||||||||||
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Total cost and operating expenses |
123,187 | 130,931 | 33,303 | 41,965 | ||||||||||||
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Loss from operations |
(409 | ) | (4,689 | ) | (1,551 | ) | (1,235 | ) | ||||||||
Interest expense |
(506 | ) | (382 | ) | (67 | ) | (93 | ) | ||||||||
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Loss before income taxes |
(915 | ) | (5,071 | ) | (1,618 | ) | (1,328 | ) | ||||||||
Provision for income taxes |
18 | | | | ||||||||||||
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Net loss |
(933 | ) | (5,071 | ) | (1,618 | ) | (1,328 | ) | ||||||||
Accretion of redeemable convertible preferred stock to redemption value |
(656 | ) | (14,093 | ) | (11,784 | ) | (11,013 | ) | ||||||||
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Net loss attributable to common stockholders |
$ | (1,589 | ) | $ | (19,164 | ) | $ | (13,402 | ) | $ | (12,341 | ) | ||||
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Net loss per share attributable to common stockholders, basic and diluted(1) |
$ | (1.30 | ) | $ | (17.47 | ) | $ | (11.57 | ) | $ | (11.34 | ) | ||||
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Weighted average common stock outstanding, basic and diluted(1) |
1,221 | 1,097 | 1,158 | 1,088 | ||||||||||||
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Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2) |
$ | $ | ||||||||||||||
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Pro forma weighted average common stock outstanding, basic and diluted (unaudited)(2) |
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Other Financial and Operational Data: |
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Quote requests |
9,508 | 12,123 | 2,961 | 3,457 | ||||||||||||
Variable marketing margin(3) |
$ | 33,760 | $ | 37,551 | $ | 8,856 | $ | 11,694 | ||||||||
Adjusted EBITDA(3) |
$ | 2,984 | $ | (1,469 | ) | $ | (676 | ) | $ | (374 | ) |
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(1) | See Note 11 to our audited financial statements and our unaudited condensed financial statements appearing at the end of this prospectus, for an explanation of the calculations of net loss per share attributable to common stockholders, basic and diluted. |
(2) | See Note 11 to our audited financial statements and our unaudited condensed financial statements appearing at the end of this prospectus, for an explanation of the calculations of pro forma net loss per share attributable to common stockholders, basic and diluted. |
(3) | These financial measures are not calculated in accordance with GAAP. See Selected Financial and Other DataNon-GAAP Financial Measures for information regarding our use of these non-GAAP financial measures and a reconciliation of such measures to their nearest comparable financial measures calculated and presented in accordance with GAAP. |
As of March 31, 2018 | ||||||||||||
Actual | Pro Forma(2) |
Pro Forma As
Adjusted(3) |
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(in thousands) | ||||||||||||
Balance Sheet Data: |
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Cash |
$ | 2,579 | $ | $ | ||||||||
Working capital(1) |
2,421 | |||||||||||
Total assets |
28,195 | |||||||||||
Long-term debt |
5,774 | |||||||||||
Total liabilities |
27,995 | |||||||||||
Redeemable convertible preferred stock |
61,950 | |||||||||||
Total stockholders equity (deficit) |
(61,750 | ) |
(1) | We define working capital as current assets less current liabilities. |
(2) | The pro forma balance sheet data give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of shares of Class B common stock upon the closing of this offering. |
(3) | The pro forma as adjusted balance sheet data give further effect to our issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted amount of each of cash, working capital, total assets, and total stockholders equity (deficit) by $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted amount of each of cash, working capital, total assets, and total stockholders equity (deficit) by $ million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of may also become important factors that adversely affect our business. Our business, financial condition, operating results, cash flow and prospects could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Our business is dependent on our relationships with insurance providers with no long-term contractual commitments. If insurance providers stop purchasing consumer referrals from us, or if we are unable to establish and maintain new relationships with insurance providers, our business, results of operations and financial condition could be materially adversely affected.
A substantial majority of our revenue is derived from sales of consumer referrals to insurance providers, including both insurance carriers and agents. Our relationships with insurance providers are dependent on our ability to deliver quality referrals at attractive volumes and prices. If insurance providers are not able to acquire their preferred referrals in our marketplace, they may stop buying referrals from us. Our agreements with insurance providers are short-term agreements, and insurance providers can stop participating in our marketplace at any time with no notice. As a result, we cannot guarantee that insurance providers will continue to work with us, or, if they do, the number of referrals they will purchase from us. In addition, we may not be able to attract new insurance providers to our marketplace or increase the amount of revenue we earn from insurance providers over time.
If we are unable to maintain existing relationships with insurance providers in our marketplace, or unable to add new insurance providers, we may be unable to offer our consumers the shopping experience they expect. This deficiency could reduce consumers confidence in our services, making us less popular with consumers. As a result, consumers could cease to use us, or use us at a decreasing rate.
In addition, our insurance carrier customers often provide subsidies to agents to offset agents costs in connection with selling insurance policies from our referrals. Our carrier customers have no obligation to provide such subsidies and may reduce the amount of such subsidies or cease providing them at any time. If our carrier customers were to reduce the amounts of or cease providing such subsidies, our insurance agent customers may terminate or reduce the extent of their relationships with us. Because our insurance provider customers can stop buying from us at any time and our insurance carrier customers may cease providing subsidies to our insurance agent customers at any time, our business, results of operations and financial condition could be materially adversely affected with little to no notice.
We compete with other media for advertising spend from our insurance provider customers, and if we are unable to maintain or increase our share of the advertising spend of our insurance provider customers, our business could be harmed.
We compete for insurance provider advertising spend with traditional offline media such as television, billboards, radio, magazines and newspapers, as well as online sources such as websites, social media and websites dedicated to providing multiple quote insurance information. Our ability to attract and retain insurance provider customers, and to generate advertising revenue from them, depends on a number of factors, including:
| the ability of our insurance provider customers to earn an attractive return on investment from their spending with us; |
| our ability to increase the number of consumers using our marketplace; |
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| our ability to compete effectively with other media for advertising spending; and |
| our ability to keep pace with changes in technology and the practices and offerings of our competitors. |
We may not succeed in retaining or capturing a greater share of our insurance provider customers advertising spending compared to alternative channels. If our current insurance provider customers reduce or end their advertising spending with us and we are unable to increase the spending of our other insurance provider customers or attract new insurance provider customers, our revenue and business and financial results would be materially adversely affected.
In addition, insurance provider advertising spend remains concentrated in traditional offline media channels. Some of our current or potential insurance provider customers have little or no experience using the internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the internet. The adoption of online marketing may require a cultural shift among insurance providers as well as their acceptance of a new way of conducting business, exchanging information and evaluating new advertising and marketing technologies and services. This shift may not happen at all or at the rate we expect, in which case our business could suffer. Furthermore, we cannot assure you that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.
If consumers do not find value in our services or do not like the consumer experience on our platform, the number of referrals in our marketplace may decline, and our business, results of operations and financial condition could be materially adversely affected.
If we fail to provide a compelling insurance shopping experience to our consumers both through our web and mobile platforms, the number of consumer referrals purchased from us will decline, and insurance providers may terminate their relationships with us or reduce their spending with us. If insurance providers stop offering insurance in our marketplace, we may not be able to maintain and grow our consumer traffic, which may cause other insurance providers to stop using our marketplace. We believe that our ability to provide a compelling insurance shopping experience, both on the web and through mobile devices, is subject to a number of factors, including:
| our ability to maintain a marketplace for consumers and insurance providers that efficiently captures user intent and effectively delivers relevant quotes to each individual insurance buyer; |
| our ability to continue to innovate and improve our marketplace; |
| our ability to launch new vertical offerings that are effective and have a high degree of consumer and insurance provider engagement; |
| our ability to maintain the compatibility of our mobile applications with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and |
| our ability to access a sufficient amount of data to enable us to provide relevant quotes to consumers. |
If the use of our marketplace declines or does not continue to grow, our business and operating results would be harmed.
We rely on the data provided to us by consumers and insurance providers to improve our product and service offerings, and if we are unable to maintain or grow such data we may be unable to provide consumers with a shopping experience that is relevant, efficient and effective, which could adversely affect our business.
Our business relies on the data provided to us by consumers and insurance providers using our marketplace. The large amount of information we use in operating our marketplace is critical to the insurance shopping
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experience we provide for consumers. If we are unable to maintain or grow the data provided to us, the value that we provide to consumers and insurance providers using our marketplace may be limited. In addition, the quality, accuracy and timeliness of this information may suffer, which may lead to a negative shopping experience for consumers using our marketplace and could materially adversely affect our business and financial results.
A significant portion of our revenue in recent periods was derived from one customer, and our results of operations could be adversely affected and stockholder value harmed if we lose business from this customer.
Sales to Progressive Casualty Insurance Company accounted for 23% and 20% of our revenue for the years ended December 31, 2016 and 2017, respectively, and for 25% and 16% of our revenue for the three months ended March 31, 2017 and 2018, respectively. This customer made purchases from us under short-term agreements and may cease doing business with us at any time with no notice. As a result, we have no assurances that this customer will continue to purchase from us at its historical levels or at all. If this customer were to reduce its levels of purchases from us or discontinue its relationship with us, the loss could have a material adverse effect on our results of operations in both the short and long term.
We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites, and if we are unable to attract consumers and convert them into quote requests in a cost-effective manner, our business and financial results may be harmed.
Our success depends on our ability to attract online consumers to our websites and convert them into referrals in a cost-effective manner. We depend, in part, on search engines, display advertising, social media, email, content-based online advertising and other online sources for our website traffic. We are included in search results as a result of both paid search listings, where we purchase specific search terms that result in the inclusion of our advertisement, and, separately, organic searches that depend upon the content on our sites.
Search engines, social media platforms and other online sources often revise their algorithms and introduce new advertising products. If one or more of the search engines or other online sources on which we rely for website traffic were to modify its general methodology for how it displays our advertisements, resulting in fewer consumers clicking through to our websites, our business could suffer. In addition, if our online display advertisements are no longer effective or are not able to reach certain consumers due to consumers use of ad-blocking software, our business could suffer.
If one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumers and traffic to our websites could decrease, any of which could have a material adverse effect on our business, financial condition and results of operations.
We currently compete with numerous other online marketing companies, and we expect that competition will intensify. Some of these existing competitors may have more capital or complementary products or services than we do, and they may leverage their greater capital or diversification in a manner that adversely affects our competitive position. In addition, other newcomers, including major search engines and content aggregators, may be able to leverage their existing products and services to our disadvantage. We may be forced to expend significant resources to remain competitive with current and potential competitors. If any of our competitors are more successful than we are at attracting and retaining consumers, our business, financial condition and results of operations could be materially adversely affected.
If our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or if our sites are not accessible or treated disadvantageously by internet service providers, our business may be substantially harmed.
If email providers or internet service providers, or ISPs, implement new or more restrictive email or content delivery or accessibility policies, including with respect to net neutrality, it may become more difficult to deliver
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emails to consumers or for consumers to access our websites and services. For example, certain email providers, including Google, may categorize our emails as promotional, and these emails may be directed to an alternate, and less readily accessible, section of a consumers inbox. If email providers materially limit or halt the delivery of our emails, or if we fail to deliver emails to consumers in a manner compatible with email providers email handling or authentication technologies, our ability to contact consumers through email could be significantly restricted. In addition, if we are placed on spam lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our operating results and financial condition could be substantially harmed. Further, if ISPs prioritize or provide superior access to our competitors content, our business and results of operations may be adversely affected.
Insurance providers who use our marketplace can offer products and services outside of our marketplace or obtain similar services from our competitors.
Because we do not have exclusive relationships with insurance providers, consumers may obtain quotes and purchase insurance policies from them without having to use our marketplace. Insurance providers can attract consumers directly through their own marketing campaigns or other traditional methods of distribution, such as referral arrangements, physical storefront operations or broker agreements. Insurance providers also may offer quotes to prospective customers online directly, through one or more online competitors of our business, or both. If our insurance provider customers determine to compete directly with us or choose to favor one or more of our competitors, they could cease providing us with quote information and terminate any direct interactions we have with their online workflows, customers relationship management systems and internal quoting platforms, which would reduce the breadth of the quoting information available to us and could put us at a competitive disadvantage against their direct marketing efforts or our competitors that retain such access. If consumers seek insurance policies directly from insurance providers or through our competitors, or if insurance providers cease providing us with access to their systems or information, the number of consumers searching for insurance on our marketplace may decline, and our business, financial condition and results of operations could be materially adversely affected.
If we are unable to develop new offerings, achieve increased consumer adoption of those offerings or penetrate new vertical markets, our business and financial results could be materially adversely affected.
Our success depends on our continued innovation to provide product and service offerings that make our marketplace, websites and mobile applications useful for consumers. These new offerings must be widely adopted by consumers in order for us to continue to attract insurance providers to our marketplace. Accordingly, we must continually invest resources in product, technology and development in order to improve the comprehensiveness and effectiveness of our marketplace and its related product and service offerings and effectively incorporate new internet and mobile technologies into them. These product, technology and development expenses may include costs of hiring additional personnel and of engaging third-party service providers and other research and development costs.
Without an innovative marketplace and related product and service offerings, we may be unable to attract additional consumers or retain current consumers, which could adversely affect our ability to attract and retain insurance providers who want to participate in our marketplace, which could, in turn, harm our business and financial results.
In addition, while we have historically concentrated our efforts on the automobile insurance market, we will need to penetrate additional vertical markets, such as home and life insurance, in order to achieve our long-term growth goals. Our success in the automobile insurance market depends on our deep understanding of this industry. In order to penetrate new vertical markets, we will need to develop a similar understanding of those new markets and the associated business challenges faced by participants in them. Developing this level of understanding may require substantial investments of time and resources and we may not be successful. In addition, these new vertical markets may have specific risks associated with them. For example, we are subject to
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risks related to the credit card and debit card payments we accept for our life insurance offerings, including reliance on one third-party payment processing provider and risk of fraud and theft. If we fail to penetrate new vertical markets successfully, our revenue may grow at a slower rate than we anticipate and our financial condition could suffer.
Our business is substantially dependent on revenue from automotive insurance providers and subject to risks related to automotive insurance and the larger automotive industry. Our business may also be adversely affected by downturns in the home and life insurance industries.
A substantial majority of the insurance purchased through our marketplace is automobile insurance and our financial prospects depend significantly on the larger automotive industry ecosystem. Revenue from automotive insurance providers accounted for 97.4% and 94.5% of our total revenue for the years ended December 31, 2016 and 2017, respectively, and for 96.9% and 88.2% of our total revenue for the three months ended March 31, 2017 and 2018, respectively. If insurance carriers experience large or unexpected losses through the offering of insurance, these carriers may choose to decrease the amount of money they spend with us. In addition, decreases in consumer demand in the automotive industry in general could adversely affect the demand for insurance and, in turn, the number of consumers using our marketplace to request insurance quotes. For example, trends in the automotive industry, such as from the effects of ride sharing applications, including Uber and Lyft, distracted driving and autonomous driving technologies, have the potential to adversely affect automobile purchases and to decrease the demand for auto insurance. In addition, consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected and may be affected by negative trends in the broader economy, including the cost of energy and gasoline, the availability and cost of credit, reductions in business and consumer confidence, stock market volatility and increased unemployment.
We are also dependent upon the economic success of the home and life insurance industries. Declines in demand for home and life insurance could cause fewer consumers to use our product offerings to shop for such policies. Downturns in either of these markets, which could be caused by a downturn in the economy at large, could materially adversely affect our business.
If we fail to build and maintain our brand, our ability to expand the use of our marketplace by consumers and insurance providers may be adversely affected.
Our future success depends upon our ability to create and maintain brand recognition and a reputation for delivering easy, efficient and personal insurance shopping. A failure by us to build our brand and deliver on these expectations could harm our reputation and damage our ability to attract and retain consumers, which could adversely affect our business. If consumers do not perceive our marketplace as a better insurance shopping experience, our reputation and the strength of our brand may be adversely affected.
Many of our competitors have more resources than we do and can spend more advertising their brands and services. As a result, we are required to spend considerable money and other resources to create brand awareness and build our reputation. Should the need or competition for top-of-mind awareness and brand preference increase, we may not be able to build brand awareness, and our efforts at building, maintain and enhancing our reputation could fail. Even if we are successful in our branding efforts, such efforts may not be cost-effective. If we are unable to maintain or enhance consumer awareness of our brand cost-effectively, our business, results of operations and financial condition could be materially adversely affected.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers, data privacy and security issues, and other aspects of our business, whether valid or not, could diminish confidence and participation in our marketplace and could adversely affect our reputation and business. There can be no
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assurance that we will be able to maintain or enhance our brand, and failure to do so would harm our business growth prospects and operating results.
Our marketing efforts may not be successful.
We currently rely on performance marketing channels that must deliver on metrics that are selected by our insurance provider customers and are subject to change at any time. We are unable to control how our insurance provider customers evaluate our performance. Certain of these metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and adversely affect our business. In addition, the metrics we provide may differ from estimates published by third parties or from similar metrics of our competitors due to differences in methodology. If our insurance provider customers do not perceive our metrics to be accurate, or if we discover material inaccuracies in our metrics, it could adversely affect our online marketing efforts and business.
In addition, we plan to expand our marketing efforts into offline channels such as television and radio. We face significant competition in marketing on offline channels, including from competitors and insurance carriers who may have significantly greater resources and brand recognition than we do. If we fail to expand our marketing efforts in offline channels or to market ourselves successfully on such channels, we may not experience increases in consumer traffic and increased referral and advertising revenue necessary to grow our business, which could have a material adverse effect on our results of operations and financial results.
If we fail to manage future growth effectively, our business could be materially adversely affected.
We have at times experienced rapid growth and anticipate further growth. This growth has placed significant demands on management and our operational infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture. If we do not manage the growth of our business and operations effectively, the quality of our services and efficiency of our operations could suffer and we may not be able to execute on our business plan, which could harm our brand, results of operations and overall business.
Failure to increase our revenue or reduce our sales and marketing expense as a percentage of revenue would adversely affect our financial condition and profitability.
We expect to make significant future investments to support the further development and expansion of our business, and these investments may not result in increased revenue or growth on a timely basis or at all. Furthermore, these investments may not decrease as a percentage of revenue if our business grows. In particular, we intend to continue investing to market to our consumers including to increase awareness of our brand, including through television and radio advertisements. There can be no assurance that these investments will increase revenue or that we will eventually be able to decrease our sales and marketing expense as a percentage of revenue, and failure to do so would adversely affect our financial condition and profitability.
We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.
We face significant competition from companies that provide information and insurance-buying services designed to help consumers shop for insurance and to enable insurance providers to reach these consumers. Our competitors offer various products and services that compete with us. Some of these competitors include:
| companies that operate, or could develop, insurance search websites; |
| media sites, including websites dedicated to providing multiple quote insurance information and financial services information generally; |
| internet search engines; and |
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| individual insurance providers, including through the operation of their own websites, physical storefront operations and broker arrangements. |
We compete with these and other companies for a share of insurance providers overall budget for online and offline media marketing and referral spend. To the extent that insurance providers view alternative marketing and media strategies to be superior to our marketplace, we may not be able to maintain or grow the number of insurance providers using, and advertising on, our marketplace, and our business and financial results may be harmed.
We also expect that new competitors will enter the online insurance industry with competing marketplaces, products and services, which could have an adverse effect on our business and financial results.
Our competitors could significantly impede our ability to maintain or expand the number of consumers and insurance providers using our marketplace. Our competitors also may develop and market new technologies that render our marketplace less competitive, unmarketable or obsolete. In addition, if our competitors develop marketplaces with similar or superior functionality to ours, and our web traffic declines, we may need to decrease our referral and advertising fees. If we are unable to maintain our current pricing structure due to competitive pressures, our revenue would likely be reduced and our financial results would be adversely affected.
Our existing and potential competitors may have significantly more financial, technical, marketing and other resources than we have, and the ability to devote greater resources to the development, promotion and support of their marketplaces, products and services. In addition, they may have more extensive insurance industry relationships than we have, longer operating histories and greater name recognition. As a result, these competitors may be able to respond more quickly with new technologies and to undertake more extensive marketing or promotional campaigns than we can. In addition, to the extent that any of our competitors have existing relationships with insurance providers for marketing or data analytics solutions, those insurance providers may be unwilling to partner with us. If we are unable to compete with these competitors, the demand for our marketplace and related products and services could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our business and financial results.
Insurance providers on our marketplace may not provide competitive levels of service to consumers, which could materially adversely affect our brand and business and our ability to attract consumers.
Our ability to provide consumers with a high-quality and compelling insurance shopping experience depends, in part, on consumers receiving competitive prices, convenience, customer service and responsiveness from insurance providers with whom they are matched on our marketplace. If these providers do not meet or exceed consumer expectations with competitive levels of convenience, customer service, price and responsiveness, the value of our brand may be harmed, our ability to attract consumers to our marketplace may be limited and the number of consumers matched through our marketplace may decline, which could have a material adverse effect on our business, financial condition and results of operations.
Our business depends on our ability to maintain and improve the technology infrastructure necessary to send marketing emails and operate our websites, and any significant disruption in service on our email network infrastructure or websites could result in a loss of consumers, which could harm our business, brand, operating results and financial condition.
Our brand, reputation and ability to attract consumers and insurance providers depend on the reliable performance of our technology infrastructure and content delivery. We use emails to attract consumers to our
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marketplace. Our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be prolonged and harmful to our business. If our websites are unavailable when users attempt to access them, or if they do not load as quickly as expected, users may not return as often in the future, or at all. As our user base and the amount of information shared on our websites and mobile applications continue to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue to spend substantial amounts on data centers and equipment and related network infrastructure and services to handle the traffic on our websites and mobile applications and to help shorten the length of or prevent system interruptions. The operation of these systems is expensive and complex and we could experience operational failures. Interruptions, delays or failures in these systems, whether due to earthquakes, adverse weather conditions, other natural disasters, power loss, computer viruses, cybersecurity attacks, physical break-ins, terrorism, errors in our software or otherwise, could be prolonged and could affect the security or availability of our websites and applications, and prevent consumers from accessing our services. Such interruptions also could result in third parties accessing our confidential and proprietary information, including our intellectual property or consumer information. Problems with the reliability or security of our systems could harm our reputation, our ability to protect our confidential and proprietary information, result in a loss of users of our marketplace or result in additional costs. If we do not maintain or expand our network infrastructure successfully or if we experience operational failures or prolonged disruptions or delays in the availability of our systems or a significant search engine, we could lose current and potential consumers, which could harm our operating results and financial condition.
Substantially all of the communications, network and computer hardware used to operate our websites and mobile applications are located in the United States in Amazon Web Services and Google Cloud Platform data centers. Although we believe our systems are fully redundant, there may be exceptions for certain hardware. In addition, we do not own or control the operation of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail. In addition, we may not have sufficient protection or recovery plans in certain circumstances.
Problems faced by our third-party web hosting providers could adversely affect the experience of users of our marketplace. Our third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by our third-party web hosting providers or any of the service providers with whom they contract may have adverse effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.
Any errors, defects, disruptions or other performance or reliability problems with our network operations could cause interruptions in access to our marketplace as well as delays and additional expense in arranging new facilities and services and could harm our reputation, business, operating results and financial condition.
Although we carry business interruption insurance, it may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our service as a result of system failures.
We rely on third-party service providers for many aspects of our business, and any failure to maintain these relationships could harm our business.
Our success will depend upon our relationships with third parties, including those with our payment processor, our data center host, our customer relationship manager software provider and our general ledger provider. If these third parties experience difficulty meeting our requirements or standards, or if the license agreements we have entered into with such third parties are terminated or not renewed, it could make it difficult for us to operate some aspects of our business, which could damage our business and reputation. In addition, if
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such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruptions, increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs and delays in our ability to provide consumers with content or provide similar services until an equivalent provider could be found or we could develop replacement technology or operations. In addition, if we are unsuccessful in identifying or finding high-quality partners, if we fail to negotiate cost-effective relationships with them or if we ineffectively manage these relationships, it could adversely affect our business and financial results.
We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. Experienced information technology personnel, who are critical to the success of our business, are in particularly high demand. This demand is particularly acute in the greater Boston, Massachusetts area, where we are headquartered. Competition for their talents is intense, and retaining such individuals can be difficult. The loss of any of our executive officers or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationships with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially adversely affected.
We are subject to risks associated with a corporate culture that promotes entrepreneurialism and decentralized decision making.
We have delegated considerable operational autonomy and responsibility to our employees, including by having flexible working hours. In addition, a central tenet of our culture is providing our employees with opportunities to grow, accept new challenges and take on new responsibilities.
As a consequence, we may have relatively inexperienced people in key positions, and we routinely rotate experienced employees to other jobs within our company. In addition, the autonomy we provide to our employees could result in poor decision making, which could have a material adverse effect on our business, results of operations, financial condition and prospects.
If we are unable to successfully respond to changes in the market, our business could be harmed.
While our business has grown rapidly as consumers and insurance providers have increasingly accessed our marketplace, we expect that our business will evolve in ways that may be difficult to predict. For example, we anticipate that over time we may reach a point when investments in new user traffic are less productive and the continued growth of our revenue will require more focus on developing new product and service offerings for consumers and insurance providers, expanding our marketplaces into new international markets and new industries to attract new customers, and increasing our referral and advertising fees. It is also possible that consumers and insurance providers could broadly determine that they no longer believe in the efficiency and effectiveness of our marketplace. Our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be harmed and our results of operations and financial condition could be materially adversely affected.
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We have incurred net losses in the past and we may generate losses in the future.
We have incurred net losses in the past and have never generated net income on an annual basis. We anticipate that our operating expenses and capital expenditures will increase substantially in the foreseeable future as we continue to invest to expand into new verticals, enhance our brand awareness, hire additional employees, expand outside of the United States and improve our technology and infrastructure capabilities. Our expansion efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenue and margins sufficiently to offset these higher expenses. We incur significant expenses in acquiring consumers, developing our technology and marketing the products and services we offer. Our costs also may increase due to our continued new product development and general administrative expenses, such as legal and accounting expenses related to being a public company. If we fail to increase our revenue or manage these additional costs, we may continue to incur losses in the future.
We expect our results of operations to fluctuate on a quarterly and annual basis.
Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside of our control. Our results may vary as a result of fluctuations in the number of consumers and insurance providers using our marketplace and the size and seasonal variability of the marketing budgets of our insurance provider customers. In addition, the auto, home and life insurance industries are each subject to their own cyclical trends and uncertainties. Fluctuations and variability across these different verticals may affect our revenue. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect our stock price.
Our past growth may not be indicative of our future growth, and our revenue growth rate may decline in the future.
Our revenue grew from $96.8 million in 2015 to $122.8 million in 2016 and to $126.2 million in 2017, increases of 26.8% and 2.8%, respectively, and from $31.8 million for the three months ended March 31, 2017 to $40.7 million for the three months ended March 31, 2018, an increase of 28.3%. This growth may not be indicative of our future growth, if any, and we will not be able to grow as expected, or at all, if we do not accomplish the following:
| increase the number of consumers using our marketplace; |
| maintain and expand the number of insurance providers that use our marketplace or our revenue per provider; |
| further improve the quality of our marketplace, and introduce high-quality new products; and |
| increase the number of insurance shoppers acquired by insurance providers on our marketplace. |
Our revenue growth rates may also be limited if we are unable to achieve high market penetration rates as we experience increased competition. If our revenue or revenue growth rates decline, investors perceptions of our business may be adversely affected and the market price of our Class A common stock could decline.
Our dedication to making decisions based primarily on the best interests of our company and stockholders may cause us to forgo short-term gains in pursuit of potential but uncertain long-term growth.
Our guiding principle is to build our business by making decisions based primarily upon the best interests of our entire marketplace, including consumers and insurance providers, which we believe has been essential to our success in increasing our user growth rate and engagement and best serves the long-term interests of our
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company and our stockholders. In the past, we have forgone, and we will in the future continue to forgo, certain expansion or short-term revenue opportunities that we do not believe are in the best interests of our marketplace and its users, even if such decisions adversely affect our results of operations in the short term. However, this strategy may not result in the long-term benefits that we expect, in which case our user traffic and engagement, business and financial results could be harmed.
We collect, process, store, share, disclose and use consumer information and other data, and our actual or perceived failure to protect such information and data or respect users privacy could damage our reputation and brand and harm our business and operating results.
Use of our marketplace involves the storage and transmission of consumers information, including personal information, and security breaches could expose us to a risk of loss or exposure of this information, which could result in potential liability, litigation and remediation costs, as well as reputational harm, all of which could materially adversely affect our business and financial results. For example, unauthorized parties could steal our users names, email addresses, physical addresses, phone numbers and other information, including sensitive medical information, which we collect when providing life insurance quotes. While we use encryption and authentication technology licensed from third parties designed to effect secure transmission of such information, we cannot guarantee the security of the transfer and storage of the personal information we collect from customers.
Like all information systems and technology, our websites, mobile applications and information systems may be subject to computer viruses, break-ins, phishing impersonation attacks, attempts to overload our servers with denial-of-service or other attacks, ransomware and similar incidents or disruptions from unauthorized use of our computer systems, as well as unintentional incidents causing data leakage, any of which could lead to interruptions, delays or website shutdowns, or could cause loss of critical data or the unauthorized disclosure, access, acquisition, alteration or use of personal or other confidential information. Although we have a chief information officer who coordinates our cybersecurity measures, policies and procedures, and our chief information officer regularly reports to our board of directors regarding these matters, we cannot be certain that our efforts will be able to prevent breaches of the security of our information systems and technology. If we experience compromises to our security that result in websites or mobile application performance or availability problems, the complete shutdown of our websites or mobile applications or the loss or unauthorized disclosure, access, acquisition, alteration or use of confidential information, consumers and insurance providers may lose trust and confidence in us, and consumers and insurance providers may decrease the use of our website or stop using our website entirely. Further, outside parties may attempt to fraudulently induce employees, consumers or insurance providers to disclose sensitive information in order to gain access to our information or consumers or insurance providers information. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.
Any or all of the issues above could adversely affect our ability to attract new users and increase engagement by existing users, cause existing users to curtail or stop use of our marketplace, cause existing insurance provider customers to cancel their contracts or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, thereby harming our business, results of operations and financial condition. Although we are not aware of any material information security incidents to date, we have detected common types of attempts to attack our information systems and data using means that have included viruses and phishing.
There are numerous federal, state and local laws in the United States and around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, cross-border transfer and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with, may result in regulatory fines or penalties, and may be inconsistent between countries and jurisdictions or conflict with other rules.
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We are subject to the terms of our privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us by consumer advocacy groups or others, and could cause consumers and insurance providers to lose trust in us, all of which could be costly and have an adverse effect on our business. In addition, new and changed rules and regulations regarding privacy, data protection and cross-border transfers of consumer information could cause us to delay planned uses and disclosures of data to comply with applicable privacy and data protection requirements. Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put consumer or insurance provider information at risk and could in turn harm our reputation, business and operating results.
We may be unable to halt the operations of websites that aggregate or misappropriate our data.
From time to time, third parties may misappropriate our data through website scraping, robots or other means and aggregate this data on their websites with data from other companies. In addition, copycat websites may misappropriate data in our marketplace and attempt to imitate our brand or the functionality of our website. If we become aware of such websites, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the effect of the operation of such websites. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed.
We are subject to a number of risks related to the credit card and debit card payments we accept.
We accept payments through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would increase our operating expenses, either of which could harm our business, financial condition and results of operations.
We currently rely exclusively on one third-party vendor to provide payment processing services, including the processing of payments from credit cards and debit cards, and our business would be disrupted if this vendor becomes unwilling or unable to provide these services to us and we are unable to find a suitable replacement on a timely basis. If we or our processing vendor fails to maintain adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if these systems fail to work properly and, as a result, we do not charge our customers credit cards on a timely basis or at all, our business, revenue, results of operations and financial condition could be harmed.
The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data are compromised due to a breach of data, we may be liable for
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significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations and financial condition.
We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply. We are required to comply with payment card industry security standards. Failing to comply with those standards may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors. Any failure to comply fully also may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, card holders and transactions.
If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendor may increase our transaction fees or terminate its relationship with us. Any increases in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our service to offset the increase. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.
We may acquire other companies or technologies, which could divert our managements attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, insurance providers and other constituents within the insurance industry as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:
| diversion of management time and focus from operating our business to addressing acquisition integration challenges; |
| coordination of technology, research and development, and sales and marketing functions; |
| transition of the acquired companys consumers and data to our marketplace; |
| retention of employees from the acquired company; |
| cultural challenges associated with integrating employees from the acquired company into our organization; |
| integration of the acquired companys accounting, management information, human resources and other administrative systems; |
| the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; |
| potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results in a given period; |
| potential liabilities for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and |
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| litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former stockholders or other third parties. |
Our failure to address these risks or other problems encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and harm our business generally. Future acquisitions also could result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expense or impairment charges associated with acquired intangible assets or goodwill, any of which could harm our financial condition. Also, the anticipated benefits of any acquisitions may not be realized.
We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us, our business, operating results and financial condition may be harmed.
We intend to continue to make investments to support our growth and may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, including to increase our marketing expenditures to improve our brand awareness, develop new product and service offerings or further improve our marketplace and existing product and service offerings, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Volatility in the credit markets also may have an adverse effect on our ability to obtain debt financing.
If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition and prospects could be materially adversely affected.
Litigation could distract management, increase our expenses or subject us to material money damages and other remedies.
Although we are not currently a party to any material legal proceedings, we may be involved from time to time in various legal proceedings, including, but not limited to, actions relating to breach of contract and intellectual property infringement that might necessitate changes to our business or operations. Regardless of whether any claims against us have merit, or whether we are ultimately held liable or subject to payment of damages, claims may be expensive to defend and may divert managements time away from our operations. If any legal proceedings were to result in an unfavorable outcome, it could have a material adverse effect on our business, financial position and results of operations. Any adverse publicity resulting from actual or potential litigation may also materially and adversely affect our reputation, which in turn could adversely affect our results.
Companies in the internet, technology and media industries are frequently subject to allegations of infringement or other violations of intellectual property rights. While we are not currently subject to claims relating to intellectual property, as we grow our business and expand our operations we may become subject to intellectual property claims by third parties. We plan to vigorously defend our intellectual property rights and our freedom to operate our business; however, regardless of the merits of the claims, intellectual property claims are often time consuming and extremely expensive to litigate or settle and are likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in significant monetary liability or prevent us from operating our business or portions of our business. Resolution of
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claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third parties altogether. Many of our contracts require us to provide indemnification against third-party intellectual property infringement claims, which would increase our defense costs and may require that we pay damages if there were an adverse ruling in any such claims. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.
Our existing and any future indebtedness could adversely affect our ability to operate our business.
As of March 31, 2018, we had $5.8 million of outstanding borrowings under our loan and security agreement with Western Alliance Bank. We do not intend to use any of our proceeds from this offering to prepay any of these borrowings. We could in the future incur additional indebtedness beyond our borrowings from Western Alliance Bank.
Our outstanding indebtedness combined with our other financial obligations and contractual commitments, including any additional indebtedness beyond our borrowings from Western Alliance Bank, could have significant adverse consequences, including:
| requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes; |
| increasing our vulnerability to adverse changes in general economic, industry and market conditions; |
| subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; |
| limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and |
| placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. |
In addition, our indebtedness under the loan and security agreement bears interest at a variable rate, making us vulnerable to increases in the market rate of interest. If the market rate of interest increases substantially, we will have to pay additional interest on this indebtedness, which would reduce cash available for our other business needs.
We intend to satisfy our current and future debt service obligations with our existing cash and cash flows from operations. However, we may not have sufficient funds, and may be unable to generate sufficient cash flows from operations, to pay the amounts due under our existing debt instruments. Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default and acceleration of amounts due. Under our loan and security agreement with Western Alliance Bank, the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, assets or condition is an event of default. If an event of default occurs and the lender accelerates the amounts due, we may need to seek additional financing, which may not be available on acceptable terms, in a timely manner or at all. In such event, we may not be able to make accelerated payments, and the lender could seek to enforce security interests in the collateral securing such indebtedness, which includes substantially all of our assets. In addition, the covenants under our existing debt instruments, the pledge of our assets as collateral and the negative pledge with respect to our intellectual property could limit our ability to obtain additional debt financing. Any of these events could have a material adverse effect on our results of operations or financial condition.
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Risks Related to Our Intellectual Property
We may not be able to adequately protect our intellectual property rights.
Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements as we deem appropriate. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software and functionality or obtain and use information that we consider proprietary.
We may not be able to discover or determine the extent of any unauthorized use or infringement or violation of our intellectual property or proprietary rights. Third parties also may take actions that diminish the value of our proprietary rights or our reputation. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could be costly, time-consuming and distracting to management, result in a diversion of resources, the impairment or loss of portions of our intellectual property and could materially adversely affect our business, financial condition and operating results. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. These steps may be inadequate to protect our intellectual property. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to use information that we regard as proprietary to create product offerings that compete with ours. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights, which could materially adversely affect our business, financial condition and operating results.
Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term EverQuote.
We currently hold the everquote.com internet domain name as well as various other related domain names. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name EverQuote.
We currently operate only in the United States. To the extent that we determine to expand our business internationally, we will encounter additional risks, including different, uncertain or more stringent laws relating to intellectual property rights and protection.
We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.
We may from time to time face allegations or claims that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors or non-practicing entities. Such claims, regardless of their merit, could result in litigation or other proceedings and could require us to expend significant financial resources and attention by our management and other personnel that otherwise would be focused on our business operations, result in injunctions against us that prevent us from using material
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intellectual property rights, or require us to pay damages to third parties. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may result in significant settlement costs or require us to stop offering some features, or purchase licenses or modify our products and features while we develop non-infringing substitutes, but such licenses may not be available on terms acceptable to us or at all, which would require us to develop alternative intellectual property.
Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results and our reputation.
As our business expands, we may be subject to intellectual property claims against us with increasing frequency, scope and magnitude. We may also be obligated to indemnify affiliates or other partners who are accused of violating third parties intellectual property rights by virtue of those affiliates or partners agreements with us, and this could increase our costs in defending such claims and our damages. For example, many of our agreements with insurance providers and other partners require us to indemnify these entities against third-party intellectual property infringement claims. Furthermore, such insurance providers and partners may discontinue their relationship with us either as a result of injunctions or otherwise. The occurrence of these results could harm our brand or materially adversely affect our business, financial position and operating results.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our technologies and processes, we rely in part on confidentiality agreements with our employees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we may not be able to assert our trade secret rights against such parties. To the extent that our employees, contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights to related or resulting know-how and inventions. The loss of confidential information or intellectual property rights, including trade secret protection, could make it easier for third parties to compete with our products. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, reputation and competitive position.
Our use of open source software could adversely affect our ability to protect our proprietary software and subject us to possible litigation.
We use open source software in connection with our software development. From time to time, companies that use open source software have faced claims challenging the use of open source software and/or compliance with open source license terms. We could be subject to suits by parties claiming ownership of what we believe to be open source software, or claiming non-compliance with open source licensing terms. Some open source licenses require users who distribute software containing open source to make available all or part of such software, which in some circumstances could include valuable proprietary code of the user. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could be harmful to our business, results of operations or financial condition, and could help our competitors develop services that are similar to or better than ours.
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Risks Related to Government Regulation
Our businesses are heavily regulated. We are, and may in the future become, subject to a variety of international, federal, state, and local laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.
Our activities are subject to extensive regulation under the laws of the United States and its various states and the other jurisdictions in which we operate. We are currently subject to a variety of, and may in the future become subject to additional, international, federal, state and local laws that are continuously evolving and developing, including laws regarding the insurance industry, mobile- and internet-based businesses and other businesses that rely on advertising, as well as privacy and consumer protection laws, including the Telephone Consumer Protection Act, or TCPA, the Telemarketing Sales Rule, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, the Fair Credit Reporting Act and employment laws, including those governing wage and hour requirements. Our insurance activities are subject to regulation by state insurance regulators in the United States. These laws are complex and can be costly to comply with, require significant management time and effort, and could subject us to claims, government enforcement actions, civil and criminal liability or other remedies, including suspension of business operations. These laws may conflict with each other, further complicating compliance efforts.
If we are unable to comply with these laws or regulations in a cost-effective manner, we may be required to modify affected products and services, which could require a substantial investment and loss of revenue, or cease providing the affected product or service altogether. If we are found to have violated laws or regulations, we may be subject to significant fines, penalties and other losses.
We assess customer insurance needs, collect customer contact information and provide other product offerings, which results in us receiving personally identifiable information. This information is increasingly subject to legislation and regulation in the United States. This legislation and regulation is generally intended to protect individual privacy and the privacy and security of personal information. We could be adversely affected if government regulations require us to significantly change our business practices with respect to this type of information or if the insurance providers who use our marketplace violate applicable laws and regulations.
Changes in applicable laws and regulations may materially increase our direct and indirect compliance and other expenses of doing business, having a material adverse effect on our business, financial condition and results of operations. If there were to be changes to statutory or regulatory requirements, we may be unable to comply fully with or maintain all required insurance licenses and approvals. Regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals. If we do not have all requisite licenses and approvals, or do not comply with applicable statutory and regulatory requirements, the regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us, which could have a material adverse effect on our business, results of operations and financial condition.
We cannot predict whether any proposed legislation or regulatory changes will be adopted, or what impact, if any, such proposals or, if enacted, such laws could have on our business, results of operations and financial condition. If we fail to comply with applicable laws and regulations, we may be subject to investigations, criminal penalties or civil remedies, including fines, injunctions, loss of an operating license or approval, increased scrutiny or oversight by regulatory authorities, the suspension of individual employees, limitations on engaging in a particular business or redress to customers. The cost of compliance and the consequences of non-compliance could have a material adverse effect on our business, results of operations and financial condition. In addition, a failure to comply with applicable laws and regulations could have a material adverse effect on our business, results of operations and financial condition by exposing us to negative publicity and reputational damage or by harming our customer or employee relationships.
In most jurisdictions, government regulatory authorities have the power to interpret and amend applicable laws and regulations, and have discretion to grant, renew and revoke the various licenses and approvals we need
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to conduct our activities. Such authorities may require us to incur substantial costs in order to comply with such laws and regulations. Regulatory statutes are broad in scope and subject to differing interpretation. In some areas of our businesses, we act on the basis of our own or the industrys interpretations of applicable laws or regulations, which may conflict from jurisdiction to jurisdiction. In the event those interpretations eventually prove different from the interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous activities.
Federal, state and international laws and regulations regulating insurance activities are complex and could have a material adverse effect on our business, may reduce our profitability and potentially limit our growth.
The insurance regulatory system in the United States is generally designed to protect the interests of consumers or policyholders, and not necessarily the interests of insurance producers, insurers, their stockholders and other investors. This system addresses, among other things: licensing companies and agents to transact business and authorizing lines of business; and regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements. In some cases, these insurance and other laws and regulations may impose operational limitations on our business, including on the products and services we may offer or on the amount or type of compensation we may collect. While we attempt to comply with applicable laws and regulations, there can be no assurance that we, our employees, consultants, contractors and other agents are in full compliance with such laws and regulations or interpretations at all times, or that we will be able to comply with any future laws or regulations.
In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that may alter or increase state authority to regulate insurance entities. Further, the National Association of Insurance Commissioners and state insurance regulators continually reexamine existing laws and regulations, interpretations of existing laws and the development of new laws and regulations. With limited exceptions, the U.S. federal government does not directly regulate the business of insurance. However, federal legislation and administrative policies in several areas can significantly and adversely affect insurance entities. These areas include financial services regulation, securities regulation, privacy and taxation. In the future, additional federal regulation may be enacted, which could affect the way we conduct our business and could result in higher compliance costs.
Insurance laws or regulations that are adopted or amended, in addition to changes in federal statutes, including the Gramm-Leach-Bliley Act and the McCarran-Ferguson Act, financial services regulations and federal taxation laws or regulation, may be more restrictive than current laws or regulations and may result in lower revenues or higher costs of compliance and thus could have a material adverse effect on our results of operations and limit our growth.
Federal, state and international laws regulating telephone and email marketing practices impose certain obligations on marketers, which could reduce our ability to expand our business.
We, and the insurance providers using our marketplace, make telephone calls and send emails to consumers who request insurance quotes through our marketplace. The United States regulates marketing by telephone and email. The TCPA prohibits companies from making telemarketing calls to numbers listed in the Federal Do-Not-Call Registry and imposes other obligations and limitations on making phone calls and sending text messages to consumers. The CAN-SPAM Act regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders. We and the insurance providers who use our marketplace may need to comply with such laws and any associated rules and regulations. States and other countries have similar laws related to telemarketing and commercial emails. Additional or modified laws and regulations, or interpretations of existing, modified or new laws, regulations and rules, could prohibit or increase the cost of engaging with consumers and impair our ability to expand the use of our products, including our demand response solution, to more users. Failure to comply with obligations and restrictions related to telephone,
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text message and email marketing could subject us to lawsuits, fines, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm our business. Moreover, over the past several years there has been a sustained increase in litigation alleging violations of laws relating to telemarketing, which has increased the exposure of companies that operate telephone and text messaging campaigns to class action litigation alleging violations of the TCPA. If we or the insurance providers who use our marketplace become subject to such litigation, it could result in substantial costs to and materially adversely affect our business.
Changes in the regulation of the internet could adversely affect our business.
Laws, rules and regulations governing internet communications, advertising and e-commerce are dynamic and the extent of future government regulation is uncertain. Federal and state regulations govern various aspects of our online business, including intellectual property ownership and infringement, trade secrets, the distribution of electronic communications, marketing and advertising, user privacy and data security, search engines and internet tracking technologies. In addition, changes in laws or regulations that adversely affect the growth, popularity or use of the internet, including potentially the recent repeal in the United States of net neutrality, could decrease the demand for our offerings and increase our cost of doing business. Future taxation on the use of the internet or e-commerce transactions could also be imposed. Future taxation on the use of the internet or e-commerce transactions could also be imposed. Existing or future regulation or taxation could hinder growth in or adversely affect the use of the internet generally, including the viability of internet e-commerce, which could reduce our revenue, increase our operating expenses and expose us to significant liabilities.
Risks from third-party products could adversely affect our businesses.
We offer third-party products, including life insurance products, and we provide marketing services with respect to other insurance products. Insurance, by its nature, involves a transfer of risk. If risk is not transferred in the way the customer expects, our reputation may be harmed and we may become a target for litigation. In addition, if these products do not generate competitive risk-adjusted returns that satisfy clients in a variety of asset classes, we will have difficulty maintaining existing business and attracting new business. This risk may be heightened during periods when credit, equity or other financial markets are deteriorating in value or are particularly volatile, or when clients or investors are experiencing losses. Significant declines in the performance of these third-party products could subject us to reputational damage and litigation risk.
Risks Related to Our Class A Common Stock and this Offering
An active trading market for our Class A common stock may not develop, and you may not be able to resell your shares of our Class A common stock at or above the initial offering price.
Before this offering, there was no public trading market for our Class A common stock. If a market for our Class A common stock does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at an attractive price, at the time that you would like to sell them, or at all. The initial public offering price of our Class A common stock will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our Class A common stock after the offering. We cannot predict the prices at which our Class A common stock will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of our Class A common stock may fall.
The market price of our Class A common stock may be volatile, which could result in substantial losses for investors purchasing shares in this offering and could subject us to securities class action litigation.
The market price of our Class A common stock could be subject to significant fluctuations after this offering, and it may decline below the initial public offering price. Some of the factors that may cause the market price of our Class A common stock to fluctuate include:
| price and volume fluctuations in the overall stock market from time to time; |
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| volatility in the market price and trading volume of comparable companies; |
| actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts; |
| announcements of new service offerings, strategic alliances or significant agreements by us or by our competitors; |
| departure of key personnel; |
| litigation involving us or that may be perceived as having an adverse effect on our business; |
| changes in general economic, industry and market conditions and trends; |
| investors general perception of us; |
| sales of large blocks of our stock; and |
| announcements regarding industry consolidation. |
In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business.
Our quarterly operating results or other operating metrics may fluctuate significantly, which could cause the trading price of our Class A common stock to decline.
Our quarterly operating results and other operating metrics have fluctuated in the past and may in the future fluctuate as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:
| the level of demand for our product and service offerings and our ability to maintain and increase our customer base; |
| the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our market; |
| bind rates by consumers; |
| pricing pressure as a result of competition or otherwise; |
| our ability to reduce costs; |
| errors in our forecasting of the demand for our product and service offerings, which could lead to lower revenue or increased costs; |
| seasonal or other variations in purchasing patterns by customers; |
| increases in and timing of sales and marketing and other operating expenses that we may incur to grow and expand our operations and to remain competitive; |
| adverse litigation judgments, settlements or other litigation-related costs; |
| regulatory proceedings or other adverse publicity about us or our product and service offerings; |
| costs related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs and possible write-downs; and |
| general economic conditions. |
Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our operating results.
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The variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of any analysts that cover us or investors with respect to revenue or other operating results for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
We will have broad discretion in the use of our net proceeds from this offering and may not use them effectively.
Our management will have broad discretion to use our net proceeds from our sale of shares in this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. We expect to use our net proceeds from this offering for working capital, capital expenditures and general corporate purposes, which could include potential strategic transactions and international expansion. See Use of Proceeds. Because we will have broad discretion in the application of our net proceeds from this offering, our management may fail to apply these funds effectively, which could materially adversely affect our ability to operate and grow our business. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.
If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they publish negative evaluations of our stock or the stock of other companies in our industry, the price of our stock and trading volume could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not currently have and may never obtain research coverage by industry or financial analysts. If no analysts or few analysts commence coverage of us, the trading price of our Class A common stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our Class A common stock or the stock of other companies in our industry, the price of our Class A common stock could decline. If one or more of these analysts cease to cover our Class A common stock, we could lose visibility in the market for our Class A common stock, which in turn could cause our stock price to decline.
Purchasers in this offering will incur immediate and substantial dilution in the book value of their investment as a result of this offering.
If you purchase Class A common stock in this offering, you will incur immediate and substantial dilution of $ per share, representing the difference between the initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and our pro forma as adjusted net tangible book value per share after giving effect to sales of shares by us in this offering and the automatic conversion of all outstanding shares of preferred stock into Class B common stock upon the closing of this offering. Moreover, to the extent outstanding options are exercised and outstanding restricted stock units vest, you will incur further dilution. See the Dilution section of this prospectus.
Because we do not expect to pay any dividends on our Class A common stock for the foreseeable future, investors in this offering may never receive a return on their investment.
You should not rely on an investment in our Class A common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our Class A common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our Class A common stock.
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The dual-class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our directors, executive officers and entities affiliated with Link Ventures and other significant stockholders who will hold in the aggregate % of the voting power of our capital stock following the completion of this offering. This will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
Our Class B common stock has 10 votes per share, and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. Following this offering, our directors, executive officers and holders of more than 5% of our common stock, and their respective affiliates, will hold in the aggregate % of the voting power of our capital stock; and entities affiliated with Link Ventures will hold in the aggregate % of the voting power of our capital stock. Because of the 10-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. This may also prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. In addition, major stock index providers have begun to exclude from their indices non-voting securities or the securities of companies with unequal voting rights. Exclusion from stock indices could make it more difficult, or impossible, for some fund managers to buy our Class A common stock, particularly in the case of index tracking mutual funds and exchange traded funds, which could adversely affect the trading liquidity and market price of our Class A common stock.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers to trusts and individual retirement accounts. In addition, all shares of Class B common stock will be required to convert to Class A common stock upon the election of a majority by voting power of the outstanding Class B common stock. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. See the section titled Description of Capital StockAnti-Takeover Provisions for additional information.
Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.
Upon the closing of this offering, more than 50% of our voting power will be held by entities affiliated with Link Ventures. As a result, we will be a controlled company under the rules of the New York Stock Exchange. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a controlled company and, as such, will be exempt from certain corporate governance requirements, including:
| a majority of the board of directors consist of independent directors; |
| the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; |
| the compensation committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; and |
| there be an annual performance evaluation of the nominating and corporate governance and compensation committees. |
Following the closing of this offering, we may elect to rely on certain of these exemptions. Accordingly, should the interests of Link Ventures differ from those of other stockholders, the other stockholders may not have
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the same protections afforded to stockholders of companies that are subject to all of the New York Stock Exchange corporate governance standards. Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.
A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our Class A common stock to drop significantly, even if our business is doing well.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and legal restrictions on resale discussed in this prospectus lapse, the trading price of our Class A common stock could substantially decline. Based on shares outstanding as of April 30, 2018, on the closing of this offering, we will have outstanding a total of shares of Class A common stock and shares of Class B common stock, assuming no exercise of outstanding options, and after giving effect to the automatic conversion of all of our outstanding shares of preferred stock into shares of Class B common stock (excluding the underwriters option to purchase additional shares of Class A common stock). This includes the shares of Class A common stock that we are selling in this offering, which may be resold in the public market immediately. The remaining shares of our Class A common stock and shares of our Class B common stock, which together represent % of our outstanding shares after this offering, are currently, and will be following the closing of this offering, restricted as a result of securities laws or lock-up agreements but will be able to be sold, subject to any applicable volume limitations, under federal securities laws with respect to affiliate sales. Each of our directors, executive officers and other holders of substantially all our outstanding shares have entered into lock-up agreements with the underwriters under which the holders of such securities have agreed that, subject to certain exceptions, without the prior written consent of J.P. Morgan Securities LLC, they will not dispose of or hedge any of their capital stock or securities convertible into or exchangeable for shares of capital stock for 180 days following the date of this prospectus. Upon each release of the foregoing restrictions, our securityholders subject to a lock-up agreement will be able to sell our shares in the public market. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to a release of the foregoing restrictions. For a description of the lock-up agreements, see the Shares Eligible for Future Sale and Underwriting sections of this prospectus.
In addition, as of April 30, 2018, there were 343,841 shares of Class B common stock subject to outstanding options, 72,615 shares of Class A common stock subject to outstanding options and an additional 182,703 shares of Class A common stock reserved for issuance under our equity incentive plans that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, lock-up agreements and Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act. Moreover, after this offering, holders of an aggregate of shares of our Class B common stock as of April 30, 2018, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of Class A common stock that we may issue under our employee benefit plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates under Rule 144.
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Anti-takeover provisions in our restated certificate of incorporation and our amended and restated bylaws, as well as provisions of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our Class A common stock.
Our restated certificate of incorporation and amended and restated bylaws and Delaware law contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our Class A common stock. These provisions may also prevent or delay attempts by our stockholders to replace or remove our management or directors. Our corporate governance documents include provisions:
| providing that directors may be removed by stockholders only for cause and only with a vote of the holders of shares representing at least of the voting power of all shares that stockholders would be entitled to vote for the election of directors; |
| limiting the ability of our stockholders to call and bring business before special meetings of stockholders and to take action by written consent in lieu of a meeting; |
| requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; |
| authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our Class A common stock; and |
| limiting the liability of, and providing indemnification to, our directors and officers. |
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders holding shares representing more than 15% of the voting power of our outstanding voting stock from engaging in certain business combinations with us. Any provision of our restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Class A common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Class A common stock in an acquisition.
Our restated certificate provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders. Our restated certificate further provides that the federal district courts of the United States of America are the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions could limit the ability of stockholders to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of our company, (2) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee or stockholder of our company to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery or (4) any action asserting a claim governed by the internal affairs doctrine. Our restated certificate of incorporation further provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and
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exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and operating results.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could materially adversely affect our business, financial condition and operating results.
The requirements of being a public company may strain our resources, divert managements attention and affect our ability to attract and retain qualified board members.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the listing requirements of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after we are no longer an emerging growth company. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, managements attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.
We are currently evaluating our internal controls, identifying and remediating any deficiencies in those internal controls and documenting the results of our evaluation, testing and remediation. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to attest to managements report on the effectiveness of our internal controls, which will be required after we are no longer an emerging growth company, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
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regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of managements time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.
We have elected to rely on certain phase-in provisions of the New York Stock Exchange rules, and, as a result, we will not immediately be subject to certain corporate governance requirements otherwise required of New York Stock Exchange-listed companies.
We are currently relying on the phase-in provisions of the New York Stock Exchange rules applicable to audit committees, which allow us to have only one independent member on the audit committee upon the listing date of our Class A common stock, a majority of independent members on our audit committee within 90 days of the listing date and a fully independent committee within one year of the listing date. As of the date of this offering, only member of our audit committee has been determined to be independent.
To the extent we elect not to rely on applicable exemptions from corporate governance requirements available to us as a controlled company, we also intend to rely on the phase-in provisions of the New York Stock Exchange rules with respect to the requirements that we have a majority of independent directors on our board of directors and compensation and nominating and corporate governance committees that are composed entirely of independent directors. Under these phase-in provisions, a majority of the members of our board of directors must be independent within one year of the date of this offering, and our compensation and nominating and corporate governance committees must each have one independent member at the time of this offering, a majority of independent members within 90 days of the date of this offering and all independent members within one year of the date of this offering. As of the date of this offering, only members of our board of directors have been determined to be independent. Upon the closing of this offering, we will not have a compensation committee or a nominating and corporate governance committee.
During the phase-in periods, our stockholders will not have the same protections afforded to stockholders of companies that comply with the New York Stock Exchanges independence requirements without reliance on the phase-in periods. We will be required to recruit new directors in order to comply with the New York Stock Exchanges independence requirements, and the resultant changes in our board and committee membership may influence our future corporate strategy and operating philosophies and may result in deviations from our current strategy. Moreover, if, during the phase-in periods, we are unable to recruit a sufficient number of new directors who qualify as independent or otherwise comply with New York Stock Exchange rules, we may be subject to delisting by the New York Stock Exchange.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
We are not currently required to comply with the rules of the Securities and Exchange Commission, or SEC, implementing Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SECs rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other
41
information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. As an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our managements attention from other matters that are important to the operation of our business. In addition, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be materially adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of this offering, subject to specified conditions. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1 billion of non-convertible debt securities over a three-year period. These exemptions include reduced disclosure obligations regarding executive compensation and exemptions from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, not being required to comply with certain requirements of Auditing Standard 3101 relating to providing a supplement to the auditors report regarding critical audit matters and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation. In this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our Class A common stock less attractive if we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to
42
private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. Accordingly, we will incur additional costs in connection with complying with the accounting standards applicable to public companies at such time or times as they become applicable to us.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of operations.
Accounting principles and related pronouncements, implementation guidelines and interpretations we apply to a wide range of matters that are relevant to our business, including, but not limited to, revenue recognition, stock-based compensation, the redemption value of our redeemable convertible preferred stock, income taxes and capitalization of web-site development costs are complex and involve subjective assumptions, estimates and judgments by our management. Changes in these accounting pronouncements or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Accounting principles generally accepted in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.
In particular, in May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606) , or ASU 2014-09, which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As an emerging growth company the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act with respect to ASU 2014-09, which will result in ASU 2014-09 becoming applicable to us on January 1, 2019. We are evaluating ASU 2014-09 and have not determined the impact it may have on our financial reporting.
Changes in lease accounting standards may materially and adversely affect us.
The FASB recently adopted new accounting rules, to be effective for our fiscal year beginning after December 2019, that will require companies to capitalize most leases on their balance sheets by recognizing a lessees rights and obligations. When the rules are effective, we will be required to account for the leases for our office space as assets and liabilities on our balance sheet, while previously we accounted for such leases on an off balance sheet basis. As a result, lease-related assets and liabilities will be recorded on our balance sheet, and we may be required to make other changes to the recording and classification of our lease-related expenses. Though these changes will not have any direct effect on our overall financial condition, these changes will cause the total amount of assets and liabilities we report to increase.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements other than statements of historical fact contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as may, should, expects, might, plans, anticipates, could, intends, target, projects, contemplates, believes, estimates, predicts, potential, seek, would or continue, or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we belive that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the Risk Factors section and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:
| our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, cash flows and ability to achieve, and maintain, future profitability; |
| our ability to attract and retain consumers and insurance providers using our marketplace; |
| our ability to develop new and enhanced products and services to attract and retain consumers and insurance providers, and our ability to successfully monetize them; |
| our anticipated growth and growth strategies and our ability to effectively manage that growth; |
| our ability to maintain and build our brand; |
| our reliance on our third-party service providers; |
| our ability to expand internationally; |
| the impact of competition in our industry and innovation by our competitors; |
| our ability to hire and retain necessary qualified employees to expand our operations; |
| our ability to adequately protect our intellectual property; |
| our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business; |
| the increased expenses and administrative workload associated with being a public company; |
| failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; and |
| the future trading prices of our Class A common stock. |
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While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance, events and circumstances may be materially different from what we expect.
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We estimate that our net proceeds from the sale of our Class A common stock by us in this offering will be approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters fully exercise their option to purchase additional shares from us in this offering, we estimate that our net proceeds from this offering will be approximately $ million. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares of Class A common stock offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions, estimated placement agent fees and estimated offering expenses payable by us.
The principal purposes of this offering are to create a public market for our Class A common stock, facilitate access to the public equity markets, increase our visibility in the marketplace and obtain additional capital.
We intend to use the net proceeds we receive from this offering for working capital, capital expenditures and general corporate purposes. In addition, we believe that opportunities may exist from time to time to expand our current business through acquisitions of or investments in complementary products, technologies or businesses. While we have no current agreements, commitments or understandings for any specific acquisitions at this time, we may use a portion of our net proceeds for these purposes.
Based on our current plans, we believe our net proceeds received from this offering, our existing cash, anticipated cash flows from future operations and liquidity available from our revolving line of credit will be sufficient to meet our working capital and capital expenditure needs and debt service obligations for at least the next months. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner that we currently expect.
Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of our net proceeds. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations, the anticipated growth of our business, and the availability and terms of alternative financing sources to fund our growth. Pending their use as described above, we intend to invest the net proceeds we receive from this offering in saving, certificate of deposit and money market accounts as well as short-term and intermediate investment-grade interest-bearing securities and obligations, such as money market funds, commercial paper and obligations of the United States government and its agencies.
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We have never declared or paid any dividends on our capital stock. We do not anticipate declaring or paying any cash dividends on our capital stock in the foreseeable future. Any future determination to declare and pay cash dividends, if any, will be made at the discretion of our board of directors and will depend on a variety of factors, including applicable laws, our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, general business or financial market conditions, and other factors our board of directors may deem relevant. In addition, our revolving line of credit contains covenants that could restrict our ability to pay cash dividends. Investors should not purchase our Class A common stock with the expectation of receiving cash dividends.
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The following table sets forth our cash and our capitalization as of March 31, 2018:
| on an actual basis; |
| on a pro forma basis to give effect to: |
| the automatic conversion of all outstanding shares of our preferred stock into shares of Class B common stock upon the closing of this offering; and |
| the filing and effectiveness of our restated certificate of incorporation, which provides for, among other things, the elimination of our Series A preferred stock, Series B preferred stock and Series B-1 preferred stock; and |
| on a pro forma as adjusted basis to give further effect to our issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
The pro forma as adjusted information set forth in the table below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the following table in conjunction with our financial statements and related notes appearing at the end of this prospectus and the sections of the prospectus titled Selected and Other Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and Description of Capital Stock.
As of March 31, 2018 | ||||||||||||
Actual |
Pro
Forma |
Pro Forma
As Adjusted |
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(in thousands, except share and per share
amounts) |
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Cash |
$ | 2,579 | $ | $ | ||||||||
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Long-term debt(1) |
5,774 | |||||||||||
Redeemable convertible preferred stock (Series A, B and B-1), $0.001 par value, 1,867,886 shares authorized, 1,574,508 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted |
61,950 | |||||||||||
Stockholders equity (deficit): |
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Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual; shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted |
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Class A common stock, $0.001 par value; 3,750,595 shares authorized, 20,550 shares issued and outstanding, actual; shares authorized, 20,550 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted |
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Class B common stock, $0.001 par value; 3,445,762 shares authorized, 1,114,688 shares issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted |
1 | |||||||||||
Additional paid-in capital |
| |||||||||||
Accumulated deficit |
(61,751 | ) | ||||||||||
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Total stockholders equity (deficit) |
(61,750 | ) | ||||||||||
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Total capitalization |
$ | 5,974 | $ | $ | ||||||||
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(1) | As of March 31, 2018, our revolving line of credit provided for up to $11.0 million of borrowings to fund our working capital needs. |
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share of Class A common stock, which is the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders equity (deficit) and total capitalization by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders equity and total capitalization by $ million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions, estimated placement agent fees and estimated offering expenses payable by us.
The foregoing table excludes:
| 72,615 shares of Class A common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $56.74 per share (which does not include options to purchase an aggregate of 106,500 shares of Class A common stock, at an exercise price of $83.34 per share, that were granted subsequent to March 31, 2018); |
| 346,891 shares of Class B common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $39.20 per share; |
| 30,312 shares of Class B common stock issuable upon the vesting of restricted stock units outstanding under our 2008 Stock Incentive Plan as of March 31, 2018; |
| 179,653 shares of Class A common stock reserved for future issuance under our 2008 Stock Incentive Plan as of March 31, 2018 (which does not account for options to purchase an aggregate of 106,500 shares of Class A common stock and 12,998 shares of Class A common stock issuable upon the vesting of restricted stock units that were granted subsequent to March 31, 2018); and |
| additional shares of Class A common stock that will become available for issuance in connection with this offering under our 2018 Equity Incentive Plan , of which we expect to grant restricted stock units with respect to an aggregate of 219,750 shares to certain of our employees and restricted stock units with respect to an aggregate of shares to certain of our non-employee directors, assuming an initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, in each case pursuant to grants approved by our board of directors in May 2018 to be effective as of immediately prior to the commencement of trading of our Class A common stock on the New York Stock Exchange. |
In addition, the number of shares of Class A common stock available for issuance under the 2018 Equity Incentive Plan upon the closing of this offering will be subject to automatic annual increases through in accordance with the terms of such plan.
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If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share immediately after this offering.
Our historical net tangible book deficit as of March 31, 2018 was $(63.1) million, or $(55.57) per share of common stock. Our historical net tangible book deficit represents our total tangible assets less our total liabilities and preferred stock, which is not included within our stockholders equity (deficit). Historical net tangible book deficit per share represents historical net tangible book deficit divided by the 1,135,238 shares of common stock outstanding as of March 31, 2018.
Our pro forma net tangible book value as of March 31, 2018 was $ , or $ per share of common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to the automatic conversion of all outstanding shares of preferred stock into an aggregate of shares of Class B common stock upon the closing of this offering. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by , the total number of shares of common stock outstanding as of March 31, 2018, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into Class B common stock upon the closing of this offering.
After giving further effect to our issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been $ million, or approximately $ per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and immediate dilution of $ per share to new investors purchasing our shares of Class A common stock in this offering. Dilution per share to new investors is determined by subtracting the pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share of our Class A common stock paid by new investors. The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share |
$ | |||||||
Historical net tangible book deficit per share as of March 31, 2018 |
$ | (55.57 | ) | |||||
Increase per share attributable to the pro forma adjustment described above |
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Pro forma net tangible book value per share as of March 31, 2018 |
$ | |||||||
Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing our Class A common stock in this offering |
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Pro forma as adjusted net tangible book value per share after this offering |
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Dilution per share to new investors purchasing shares of our Class A common stock in this offering |
$ | |||||||
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The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share of Class A common stock offered by us, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $ and the dilution per share to new investors by $ , assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Each increase of 1,000,000 shares in the number of shares of
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Class A common stock offered by us would increase our pro forma as adjusted net tangible book value per share after this offering by $ and decrease the dilution per share to new investors by $ , assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions. Each decrease of 1,000,000 shares in the number of shares of Class A common stock offered by us would decrease our pro forma as adjusted net tangible book value per share after this offering by $ and increase the dilution per share to new investors by $ , assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions.
If the underwriters exercise in full their option to purchase additional shares of Class A common stock from us in this offering, our pro forma as adjusted net tangible book value per share after the offering would be $ , and the dilution per share to new investors would be $ , in each case assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions.
The following table summarizes, as of March 31, 2018, on the pro forma as adjusted basis as described above, the total number of shares of common stock purchased from us, the total consideration paid and the average price per share paid or to be paid by existing stockholders and new investors acquiring shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Shares Purchased | Total Consideration |
Average
Price Per Share |
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Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
% | $ | % | $ | ||||||||||||||||
New investors |
$ | |||||||||||||||||||
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Total |
100 | % | 100 | % | ||||||||||||||||
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The table above assumes no exercise of the underwriters option to purchase additional shares of our Class A common stock. If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the percentage of shares of our common stock held by existing stockholders would be decreased to % of the total number of our common stock outstanding after our this offering, and the number of shares held by new investors participating in this offering would be increased to % of the total number of shares of our common stock outstanding after this offering.
The foregoing table excludes:
| 72,615 shares of Class A common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $56.74 per share (which does not include options to purchase an aggregate of 106,500 shares of Class A common stock, at an exercise price of $83.34 per share, that were granted subsequent to March 31, 2018); |
| 346,891 shares of Class B common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $39.20 per share; |
| 30,312 shares of Class B common stock issuable upon the vesting of restricted stock units outstanding under our 2008 Stock Incentive Plan as of March 31, 2018; |
| 179,653 shares of Class A common stock reserved for future issuance under our 2008 Stock Incentive Plan as of March 31, 2018 (which does not account for options to purchase an aggregate of 106,500 shares of Class A common stock and 12,998 shares of Class A common stock issuable upon the vesting of restricted stock units that were granted subsequent to March 31, 2018); and |
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| additional shares of Class A common stock that will become available for issuance in connection with this offering under our 2018 Equity Incentive Plan , of which we expect to grant restricted stock units with respect to an aggregate of 219,750 shares to certain of our employees and restricted stock units with respect to an aggregate of shares to certain of our non-employee directors, assuming an initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, in each case pursuant to grants approved by our board of directors in May 2018 to be effective as of immediately prior to the commencement of trading of our Class A common stock on the New York Stock Exchange. |
To the extent any of the outstanding options are exercised or any of the outstanding restricted stock units vest, you will experience further dilution as a new investor in this offering. If all outstanding options had been exercised and all outstanding restricted stock units had vested as of March 31, 2018, our pro forma as adjusted net tangible book value per share after this offering would be $ per share, and the total dilution per share to new investors would be $ per share. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
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SELECTED FINANCIAL AND OTHER DATA
The following tables present selected financial and other data for our business. The selected statement of operations data presented below for the years ended December 31, 2016 and 2017 and the selected balance sheet data as of December 31, 2016 and 2017 have been derived from our audited financial statements appearing at the end of this prospectus. The selected statement of operations data presented below for the years ended December 31, 2013, 2014 and 2015 and the selected balance sheet data as of December 31, 2013, 2014 and 2015 have been derived from our unaudited financial statements not included in this prospectus. The selected statement of operations data presented below for the three months ended March 31, 2017 and 2018 and the selected balance sheet data as of March 31, 2018 have been derived from our unaudited condensed financial statements included elsewhere in this prospectus and have been prepared on a consistent basis as our audited financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the financial information in those statements. Our historical results are not necessarily indicative of the results to be expected in any future period. You should read the following selected financial data in conjunction with the section of this prospectus titled Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes appearing at the end of this prospectus.
Year Ended December 31, |
Three Months Ended
March 31, |
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2013 | 2014 | 2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||
Statement of Operations Data: |
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Revenue(1) |
$ | 45,581 | $ | 61,901 | $ | 96,798 | $ | 122,778 | $ | 126,242 | $ | 31,752 | $ | 40,730 | ||||||||||||||
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Cost and operating expenses(2): |
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Cost of revenue |
393 | 2,083 | 3,971 | 5,888 | 7,745 | 1,736 | 2,615 | |||||||||||||||||||||
Sales and marketing |
42,584 | 56,104 | 87,158 | 105,820 | 109,473 | 28,427 | 35,023 | |||||||||||||||||||||
Research and development |
3,758 | 4,999 | 4,826 | 6,585 | 9,194 | 2,131 | 2,614 | |||||||||||||||||||||
General and administrative |
1,064 | 3,086 | 3,475 | 4,894 | 4,519 | 1,009 | 1,713 | |||||||||||||||||||||
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Total cost and operating expenses |
47,799 | 66,272 | 99,430 | 123,187 | 130,931 | 33,303 | 41,965 | |||||||||||||||||||||
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Loss from operations |
(2,218 | ) | (4,371 | ) | (2,632 | ) | (409 | ) | (4,689 | ) | (1,551 | ) | (1,235 | ) | ||||||||||||||
Interest expense |
(344 | ) | (895 | ) | (804 | ) | (506 | ) | (382 | ) | (67 | ) | (93 | ) | ||||||||||||||
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Loss before income taxes |
(2,562 | ) | (5,266 | ) | (3,436 | ) | (915 | ) | (5,071 | ) | (1,618 | ) | (1,328 | ) | ||||||||||||||
Provision for (benefit from) income taxes |
(106 | ) | (282 | ) | | 18 | | | | |||||||||||||||||||
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Net loss |
(2,456 | ) | (4,984 | ) | (3,436 | ) | (933 | ) | (5,071 | ) | (1,618 | ) | (1,328 | ) | ||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value |
| | | (656 | ) | (14,093 | ) | (11,784 | ) | (11,013 | ) | |||||||||||||||||
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Net loss attributable to common stockholders |
$ | (2,456 | ) | $ | (4,984 | ) | $ | (3,436 | ) | $ | (1,589 | ) | $ | (19,164 | ) | $ | (13,402 | ) | $ | (12,341 | ) | |||||||
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Net loss per share attributable to common stockholders, basic and diluted(3) |
$ | (2.02 | ) | $ | (3.80 | ) | $ | (2.85 | ) | $ | (1.30 | ) | $ | (17.47 | ) | $ | (11.57 | ) | $ | (11.34 | ) | |||||||
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Weighted average common shares outstanding, basic and diluted(3) |
1,213 | 1,310 | 1,207 | 1,221 | 1,097 | 1,158 | 1,088 | |||||||||||||||||||||
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Other Financial and Operational Data: |
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Quote requests |
1,832 | 2,363 | 5,352 | 9,508 | 12,123 | 2,961 | 3,457 | |||||||||||||||||||||
Variable marketing margin(4) |
$ | 6,913 | $ | 11,915 | $ | 23,384 | $ | 33,760 | $ | 37,551 | $ | 8,856 | $ | 11,694 | ||||||||||||||
Adjusted EBITDA(4) |
$ | (1,539 | ) | $ | (1,216 | ) | $ | (218 | ) | $ | 2,984 | $ | (1,469 | ) | $ | (676 | ) | $ | (374 | ) |
53
(1) | Comprised of revenue from the following distribution channels (as a percentage of total revenue): |
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||||||||
Direct channel |
26 | % | 58 | % | 65 | % | 81 | % | 85 | % | 86 | % | 86 | % | ||||||||||||||
Indirect channel |
74 | 42 | 35 | 19 | 15 | 14 | 14 | |||||||||||||||||||||
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100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
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(2) | Includes stock-based compensation expense as follows: |
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Cost of revenue |
$ | | $ | 7 | $ | 28 | $ | 32 | $ | 27 | $ | 6 | $ | 7 | ||||||||||||||
Sales and marketing |
156 | 285 | 536 | 762 | 789 | 210 | 270 | |||||||||||||||||||||
Research and development |
109 | 807 | 160 | 429 | 467 | 103 | 124 | |||||||||||||||||||||
General and administrative |
78 | 1,184 | 453 | 733 | 577 | 152 | 166 | |||||||||||||||||||||
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$ | 343 | $ | 2,283 | $ | 1,177 | $ | 1,956 | $ | 1,860 | $ | 471 | $ | 567 | |||||||||||||||
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(3) | See Note 11 to our audited financial statements and our unaudited condensed financial statements appearing at the end of this prospectus for an explanation of the calculations of net loss per share attributable to common stockholders, basic and diluted. |
(4) | See Non-GAAP Financial Measures for information regarding our use of these non-GAAP financial measures and a reconciliation of such measures to comparable GAAP financial measures. |
As of December 31, |
As of March 31,
2018 |
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2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Balance Sheet Data: |
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Cash |
$ | 20 | $ | 1,950 | $ | 1,187 | $ | 12,400 | $ | 2,363 | $ | 2,579 | ||||||||||||
Working capital (deficit)(1) |
(5,049 | ) | (3,818 | ) | (7,422 | ) | 11,147 | 2,634 | 2,421 | |||||||||||||||
Total assets |
9,487 | 12,700 | 16,335 | 28,250 | 20,519 | 28,195 | ||||||||||||||||||
Current and long-term debt, net of discount |
10,442 | 13,838 | 13,546 | 4,091 | 4,611 | 5,774 | ||||||||||||||||||
Total liabilities |
13,481 | 18,847 | 22,793 | 16,966 | 20,126 | 27,995 | ||||||||||||||||||
Redeemable convertible preferred stock |
981 | 981 | 981 | 36,942 | 50,937 | 61,950 | ||||||||||||||||||
Total stockholders deficit |
(4,975 | ) | (7,128 | ) | (7,439 | ) | (25,658 | ) | (50,544 | ) | (61,750 | ) |
(1) | We define working capital (deficit) as current assets less current liabilities. |
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we have presented in this prospectus our variable marketing margin and adjusted EBITDA as non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.
Variable Marketing Margin. We define variable marketing margin, or VMM, as revenue as reported in our statements of operations and comprehensive loss, less online advertising costs related to attracting consumers to our marketplace (which are a component of total advertising expense, which is a component of sales and
54
marketing expense). The most directly comparable GAAP measure for VMM is revenue less advertising expense. We utilize VMM to measure the financial return on our online advertising, specifically to measure the degree by which the revenue generated from consumer quote requests exceeds the cost to attract those consumers to our marketplace through online advertising. We also use VMM to measure the efficiency of individual online advertising and consumer acquisition sources and to make trade-off decisions to manage our return on advertising. We do not utilize VMM as a measure of our overall profitability. We present VMM because it is used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budgeted VMM and understanding the efficiency of our online advertising spend.
Adjusted EBITDA. We define adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense; depreciation and amortization expense; interest expense; and our provision for (benefit from) income taxes. The most directly comparable GAAP measure is net income (loss). We monitor and have presented in this prospectus adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance.
We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that each of these non-GAAP financial measures helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of each non-GAAP financial measure. Accordingly, we believe that these financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
Our non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures rather than revenue less advertising expense and net income (loss), which are the most directly comparable financial measures calculated and presented in accordance with GAAP. Some of these limitations are:
| VMM excludes general advertising costs that are designed to promote our business, attract insurance providers or produce results other than generating revenue or online marketplace traffic, which costs can represent significant cash expenditures; |
| adjusted EBITDA excludes stock-based compensation expense as it has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business; |
| adjusted EBITDA excludes depreciation and amortization expense and, although this is a non-cash expense, the assets being depreciated and amortized may have to be replaced in the future; |
| adjusted EBITDA does not reflect the cash requirements necessary to service interest on our debt which affects the cash available to us; |
| adjusted EBITDA does not reflect income tax expense (benefit) that affects cash available to us; and |
| the expenses and other items that we exclude in our calculations of VMM and adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from VMM and adjusted EBITDA when they report their operating results. |
In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.
The following tables reconcile VMM and adjusted EBITDA to revenue less advertising expense and net income (loss), respectively, the most directly comparable financial measures calculated and presented in accordance with GAAP.
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Reconciliation of revenue less advertising expense to variable marketing margin:
Year Ended December 31, |
Three Months Ended
March 31, |
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2013 | 2014 | 2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenue |
$ | 45,581 | $ | 61,901 | $ | 96,798 | $ | 122,778 | $ | 126,242 | $ | 31,752 | $ | 40,730 | ||||||||||||||
Less: total advertising expense 1 |
(38,668 | ) | (49,986 | ) | (73,414 | ) | (89,197 | ) | (90,471 | ) | (23,161 | ) | (29,592 | ) | ||||||||||||||
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Revenue less advertising expense |
6,913 | 11,915 | 23,384 | 33,581 | 35,771 | 8,591 | 11,138 | |||||||||||||||||||||
Add: other advertising expense 2 |
| | | 179 | 1,780 | 265 | 556 | |||||||||||||||||||||
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Variable marketing margin |
$ | 6,913 | $ | 11,915 | $ | 23,384 | $ | 33,760 | $ | 37,551 | $ | 8,856 | $ | 11,694 | ||||||||||||||
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(1) | See Note 2 to our audited financial statements and our unaudited condensed financial statements included at the end of this prospectus. |
(2) | Other advertising expenses consist of general advertising costs that are designed to promote the business, attract insurance providers or produce results other than generating online marketplace traffic, such as increasing downloads of our EverDrive safe driver app. They are not directly related to generating revenue or online marketplace traffic, and as such are excluded by management from the calculation of VMM. |
Reconciliation of Net Loss to Adjusted EBITDA:
Year Ended December 31, |
Three Months Ended
March 31, |
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2013 | 2014 | 2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Net loss |
$ | (2,456 | ) | $ | (4,984 | ) | $ | (3,436 | ) | $ | (933 | ) | $ | (5,071 | ) | $ | (1,618 | ) | $ | (1,328 | ) | |||||||
Stock-based compensation |
343 | 2,283 | 1,177 | 1,956 | 1,860 | 471 | 567 | |||||||||||||||||||||
Depreciation and amortization |
336 | 872 | 1,237 | 1,437 | 1,360 | 404 | 294 | |||||||||||||||||||||
Interest expense |
344 | 895 | 804 | 506 | 382 | 67 | 93 | |||||||||||||||||||||
Provision for (benefit from) income taxes |
(106 | ) | (282 | ) | | 18 | | | | |||||||||||||||||||
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Adjusted EBITDA |
$ | (1,539 | ) | $ | (1,216 | ) | $ | (218 | ) | $ | 2,984 | $ | (1,469 | ) | $ | (676 | ) | $ | (374 | ) | ||||||||
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56
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the section titled Risk Factors. In this discussion, we use financial measures that are considered non-GAAP financial measures under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is included elsewhere in this prospectus. Investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP.
Company Overview
EverQuote makes insurance shopping easy, efficient and personal, saving consumers and insurance providers time and money.
We operate the largest online marketplace for insurance shopping in the United States. Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. With over 10 million consumer visits per month, our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests.
Consumers may view insurance as a simple commodity with standard pricing. However, finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.
Insurance providers operate in a highly competitive and regulated industry and typically specialize on pre-determined subsets of consumers. As a result, not every consumer is a good match for every provider, and providers struggle to efficiently reach the segments that are most desirable for their business models. Traditional offline and online advertising channels reach broad audiences but lack the fine-grained consumer acquisition capabilities needed for optimally matching consumers to specific insurance products. We connect providers to a large volume of high-intent, pre-validated consumer referrals that match the insurers specific requirements. The transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance providers to evaluate the performance of their marketing spend on our platform and manage their own return on investment. We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback.
Since our founding in 2011, our core mission has been to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We are working to build the largest and most trusted
57
online insurance marketplace in the world. In pursuing this goal, we have consistently innovated through our disruptive data driven approach. Highlights of our history of innovation include:
| In 2011, we launched the EverQuote marketplace for auto insurance. |
| In 2013, we launched EverQuote Pro, our provider portal, for carriers. |
| In 2015, we launched EverQuote Pro for agents. |
| In 2016, we added home and life insurance in our marketplace and launched EverDrive, our social safe-driving mobile app. |
| In 2017, we reached 500,000 downloads of EverDrive. |
| In 2018, we exceeded 35 million cumulative quote requests since launch of our marketplace. |
We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. Our revenue grew from $45.6 million in 2013 to $126.2 million in 2017, representing a compound annual growth rate of 29.0%. In 2016 and 2017, our total revenue was $122.8 million and $126.2 million, respectively, representing year-over-year growth of 2.8%. In the three months ended March 31, 2017 and 2018, our revenue was $31.8 million and $40.7 million, respectively, representing quarter-over-quarter growth of 28.3%. We had a net loss of $0.9 million in 2016 and a net loss of $5.1 million in 2017, and had $3.0 million and $(1.5) million in adjusted EBITDA in 2016 and 2017, respectively. We had net losses of $1.6 million and $1.3 million for the three months ended March 31, 2017 and 2018, respectively, and had $(0.7) million and $(0.4) million in adjusted EBITDA for the three months ended March 31, 2017 and 2018, respectively. See the section titled Selected Financial and Other DataNon-GAAP Financial Measures for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the United States, or GAAP.
Factors Affecting Our Performance
We believe that our performance and future growth depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled Risk Factors.
Auto Insurance Industry Risk
We derive a significant portion of our revenue from auto insurance providers and our financial results depend on the performance of the auto insurance industry. In 2016, the U.S. commercial auto insurance industry experienced its worst underwriting performance in 15 years, with higher loss ratios that were driven by both adverse claim severity and frequency trends. Factors contributing to these trends include increased miles driven, greater incidence of distracted driving-related accidents, higher physical damage losses and repair costs due to more complex and sophisticated automobile parts and higher bodily injury costs from more serious accidents. As a result, our auto insurance carrier customers reduced marketing spend and cost per sale targets the following year, ultimately impacting our revenue growth in the auto insurance vertical in 2017. Despite these industry headwinds, we were able to grow our overall revenue by 2.8% in 2017. Following this industry downturn, loss ratios decreased in 2017, and in 2018, we are seeing an increase in auto insurance provider marketing spend and spend per referral in our marketplace.
Shift from indirect to direct distribution channels
Over the past five years we have shifted the majority of our revenue from our indirect channel, consisting of aggregators and media networks, to our direct channel, consisting of carriers and agents. This shift has been an important part of our maturity and evolution. The benefits of direct distribution include improved consumer
58
experience, higher pricing per referral, improved pricing stability, greater revenue predictability, richer data feedback, better performance and stronger relationships with providers and consumers. In 2017, direct distribution accounted for 85% of total revenue, as compared to 8% in 2012.
Expanding consumer traffic
Our success depends in part on the growth of our consumer traffic, as measured by quote requests. We have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels. We plan to continue to increase consumer traffic by leveraging the features and growing data assets of our platform.
Increasing the number of insurance providers and their respective spend in our marketplace
Our success also depends on our ability to retain and grow our insurance provider network. We have expanded both the number of insurance providers and the spend per provider on our platform. We believe we can increase the number of referrals per quote request while increasing the bind rate per quote request, which would allow us to increase our revenue at low incremental cost.
The chart below illustrates the increases in annual revenue generated from our existing insurance carrier customers over time, with our carrier customers divided into cohorts based on the years in which they first became customers of ours. For example, the 2011 cohort consists of all carriers that first became customers between January 1, 2011 and December 31, 2011 and, as shown in the chart below, revenue from this cohort increased from $3.8 million in the year ended December 31, 2013 to $17.8 million in the year ended December 31, 2017, representing a compound annual growth rate of 47.4%.
Cost per quote request
We have been able to significantly increase quote request volume while decreasing cost per quote request. This has enabled us to expand our variable marketing margin, while driving efficient return on investment for our insurance provider customers.
59
Key Business Metrics
We regularly review a number of metrics, including GAAP operating results and the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions. Some of these metrics are non-financial metrics or are financial metrics that are not defined by GAAP.
Quote Requests
Quote requests are consumer-submitted website forms that contain the data required to provide an insurance quote. As we attract more consumers to our platform and they complete quote requests, we are able to refer them to our insurance provider customers, selling more referrals while also collecting data, which we use to improve personalization, conversion rates and consumer satisfaction. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests. Our quote request volume grew from 1.8 million quote requests in 2013 to 12.1 million quote requests in 2017, representing a compound annual growth rate of 60.4%.
Variable Marketing Margin
We define variable marketing margin, or VMM, as revenue as reported in our statements of operations and comprehensive loss, less online advertising costs related to attracting consumers to our marketplace (which are a component of total advertising expense, which is a component of sales and marketing expense). We utilize VMM to measure the financial return on our online advertising, specifically to measure the degree by which the revenue generated from consumer quote requests exceeds the cost to attract those consumers to our marketplace through online advertising. We also use VMM to measure the efficiency of individual online advertising and consumer acquisition sources and to make trade-off decisions to manage our return on advertising. We do not utilize VMM as a measure of our overall profitability. We present VMM because it is used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budgeted VMM and understanding the efficiency of our online advertising spend. VMM, as a non-GAAP financial measure, should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. VMM should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, VMM may not necessarily be comparable to similarly titled measures presented by other companies. Our VMM grew from $6.9 million in 2013 to $37.6 million in 2017, representing a compound annual growth rate of 52.7%. For further explanation of the uses and limitations of this measure and a reconciliation of our VMM to the most directly comparable GAAP measure, revenue less advertising expense, please see Selected Financial and Other DataVariable Marketing Margin.
Adjusted EBITDA
We define adjusted EBITDA as net loss, adjusted to exclude: stock-based compensation expense, depreciation and amortization expense, interest expense and the provision for (benefit from) income taxes. Adjusted EBITDA is a non-GAAP financial measure that we present in this prospectus to supplement the financial information we present on a GAAP basis. We monitor and have presented in this prospectus adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. Adjusted EBITDA should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. Adjusted EBITDA should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, adjusted EBITDA may not necessarily be comparable to similarly titled measures presented by other companies. For further explanation of the uses and limitations of this measure and a reconciliation of our adjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see Selected Financial and Other Data Adjusted EBITDA.
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Key Components of Our Results of Operations
Revenue
We generate our revenue by selling consumer referrals to insurance provider customers, consisting of carriers and agents, as well as to indirect distributors. To simplify the quoting process for the consumer and improve performance for the provider, we are able to provide consumer-submitted quote request data along with each referral. We support three secure consumer referral formats:
| Clicks: An online-to-online referral, with a handoff of the consumer to the providers website. |
| Data: An online-to-offline referral, with quote request data transmitted to the provider for follow-up. |
| Calls: An online-to-offline referral, with the consumer and provider connected by phone. |
We recognize revenue from consumer referrals at the time of delivery. Our revenue is comprised of consumer referral fees from the automotive and home and life insurance verticals as follows:
Year Ended December 31, |
Three Months Ended
March 31, |
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2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Automotive |
$ | 119,640 | $ | 119,313 | $ | 30,768 | $ | 35,925 | ||||||||
Home and Life |
3,138 | 6,929 | 984 | 4,805 | ||||||||||||
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Total Revenue |
$ | 122,778 | $ | 126,242 | $ | 31,752 | $ | 40,730 | ||||||||
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Cost and Operating Expenses
Our cost and operating expenses consist of cost of revenue, sales and marketing, research and development, and general and administrative expenses.
We allocate certain overhead expenses, such as rent, utilities, office supplies and depreciation and amortization of general office assets to cost of revenue and operating expense categories based on headcount. As a result, an overhead expense allocation is reflected in cost of revenue and each operating expense category. Personnel-related costs included in cost of revenue and each operating expense category include wages, fringe benefit costs and stock-based compensation expense.
Cost of Revenue
Cost of revenue is comprised primarily of the costs of operating our marketplace and delivering consumer referrals to our customers. These costs consist primarily of technology service costs including hosting, software, data services, and third-party call center costs. In addition, cost of revenue includes depreciation and amortization of our platform technology assets and personnel-related costs.
Sales and Marketing
Sales and marketing expense consists primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales, marketing, data analytics and consumer acquisition functions. Advertising consists of variable costs that are related to attracting consumers to our marketplace, increasing downloads of our social safe-driving mobile app EverDrive and promoting our marketplace to carriers and agents. Our advertising costs consist of online ad spend, including search, display and social media advertisements, as well as the costs to create and produce these advertisements. Advertising costs are expensed as incurred. Marketing costs consist primarily of content development, public relations, memberships, and event costs. In order to continue to grow our business and brand awareness, we expect that we will continue to commit
61
substantial resources to our sales and marketing efforts. From 2013 to 2017, our sales and marketing expense as a percentage of revenue decreased from 93.4% to 86.7%, and we expect this trend to continue over the long term as we scale our business.
Research and Development
Research and development expenses consist primarily of personnel-related costs for software development, product management and data analytics. We have focused our research and development efforts on improving ease of use and functionality of our existing marketplace platform and developing new offerings and internal tools. We primarily expense research and development costs. Direct development costs related to software enhancements that add functionality are capitalized and depreciated as a component of cost of revenue. We expect that research and development expenses will increase as we continue to enhance and expand our platform technology.
General and Administrative
General and administrative expenses consist of personnel-related costs and related expenses for executive, finance, legal, human resources, technical support and administrative personnel as well as the costs associated with professional fees for external legal, accounting and other consulting services, insurance premiums and payment processing and billing costs. We expect general and administrative expenses to increase as we incur the costs of compliance associated with being a publicly traded company, including legal, audit and consulting fees.
Interest Expense
Interest expense consists of interest expense associated with outstanding borrowings under our loan and security agreements and the amortization of deferred financing costs and debt discount associated with such arrangements. See Liquidity and Capital ResourcesLoan and Security Agreement. In 2016, we also incurred interest on our related party note payable that was outstanding for a portion of 2016, all of which was repaid in the second half of 2016.
Income Taxes
We have not recorded income tax benefits for the net losses we have incurred in the years ended December 31, 2016 and 2017 or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2017, we had U.S. federal and state net operating loss carryforwards of $9.1 million and $7.1 million, respectively, which may be available to offset future taxable income and begin to expire in 2027. As of December 31, 2017, we also had U.S. federal and state research and development tax credit carryforwards of $1.8 million and $0.9 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2029. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date. In 2016, we recorded less than $0.1 million of current federal and state income tax expense.
On December 22, 2017, the Tax Cuts and Jobs Act, or the TCJA, was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as a limitation of the deduction for net operating losses to 80% of annual taxable income and the elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction in our deferred tax assets and liabilities, and a corresponding reduction of our valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA. The other provisions of the TCJA did not have a material impact on the December 31, 2017 financial statements.
62
Results of Operations
Comparison of the Three Months Ended March 31, 2017 and 2018
The following tables set forth our results of operations in dollar amounts and as percentage of revenue for the periods shown:
Three Months Ended March 31, | ||||||||||||
2017 | 2018 | Change | ||||||||||
(in thousands) | ||||||||||||
Revenue |
$ | 31,752 | $ | 40,730 | $ | 8,978 | ||||||
|
|
|
|
|
|
|||||||
Cost and operating expenses: |
||||||||||||
Cost of revenue |
1,736 | 2,615 | 879 | |||||||||
Sales and marketing |
28,427 | 35,023 | 6,596 | |||||||||
Research and development |
2,131 | 2,614 | 483 | |||||||||
General and administrative |
1,009 | 1,713 | 704 | |||||||||
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|
|
|
|
|||||||
Total cost and operating expenses |
33,303 | 41,965 | 8,662 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(1,551 | ) | (1,235 | ) | 316 | |||||||
Interest expense |
(67 | ) | (93 | ) | (26 | ) | ||||||
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|
|
|
|
|||||||
Loss before income taxes |
(1,618 | ) | (1,328 | ) | 290 | |||||||
Provision for income taxes |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net loss |
$ | (1,618 | ) | $ | (1,328 | ) | $ | 290 | ||||
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|||||||
Other Financial Data: |
||||||||||||
Quote requests |
2,961 | 3,457 | 496 | |||||||||
Variable marketing margin |
$ | 8,856 | $ | 11,694 | $ | 2,838 |
Three Months Ended
March 31, |
||||||||
2017 | 2018 | |||||||
Revenue |
100.0 | % | 100.0 | % | ||||
|
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|
|
|||||
Cost and operating expenses: |
||||||||
Cost of revenue |
5.5 | 6.4 | ||||||
Sales and marketing |
89.5 | 86.0 | ||||||
Research and development |
6.7 | 6.4 | ||||||
General and administrative |
3.2 | 4.2 | ||||||
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|
|
|
|||||
Total cost and operating expenses |
104.9 | 103.0 | ||||||
|
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|
|||||
Loss from operations |
(4.9 | ) | (3.0 | ) | ||||
Interest expense |
(0.2 | ) | (0.2 | ) | ||||
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|
|||||
Loss before income taxes |
(5.1 | ) | (3.2 | ) | ||||
Provision for income taxes |
| | ||||||
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|
|||||
Net loss |
(5.1 | ) | (3.2 | ) | ||||
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|
|||||
Other Financial Data: |
||||||||
Variable marketing margin |
27.9 | % | 28.7 | % |
63
Revenue:
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Revenue |
$ | 31,752 | $ | 40,730 | $ | 8,978 | 28.3 | % |
Revenue increased by $9.0 million from $31.8 million for the three months ended March 31, 2017 to $40.7 million for the three months ended March 31, 2018. The increase was due to an increase in revenue of $5.2 million and $3.8 million from our automotive and home and life insurance marketplace verticals, respectively. The increase in revenue from our automotive vertical was primarily due to an increase in revenue per quote request as a result of increased demand for consumer referrals by our insurance providers and to a lesser extent an increase in the volume of quote requests resulting from increased advertising to attract consumers. The increase in revenue from our home and life vertical was primarily driven by an increase in the volume of quote requests resulting from increased advertising to attract consumers.
Cost of Revenue
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of revenue |
$ | 1,736 | $ | 2,615 | $ | 879 | 50.6 | % | ||||||||
Percentage of revenue |
5.5 | % | 6.4 | % |
Cost of revenue increased by $0.9 million from $1.7 million for the three months ended March 31, 2017 to $2.6 million for the three months ended March 31, 2018. Cost of revenue increased in both dollars and as a percentage of revenue due primarily to increased software and data services costs of $0.6 million and increased hosting costs of $0.3 million.
Sales and Marketing
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Sales and marketing expense |
$ | 28,427 | $ | 35,023 | $ | 6,596 | 23.2 | % | ||||||||
Percentage of revenue |
89.5 | % | 86.0 | % |
Sales and marketing expenses increased by $6.6 million from $28.4 million for the three months ended March 31, 2017 to $35.0 million for the three months ended March 31, 2018. As a percentage of revenue, sales and marketing expenses decreased from 89.5% for the three months ended March 31, 2017 to 86.0% for the three months ended March 31, 2018. The $6.6 million increase in sales and marketing expense was primarily due to an increase in advertising and marketing expenditures relating to our insurance marketplace of $6.1 million and, to a lesser extent, a $0.3 million increase in advertising and marketing expenditures relating to our social safe-driving app, EverDrive, and a $0.2 million increase in personnel-related costs.
Research and Development
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Research and development expense |
$ | 2,131 | $ | 2,614 | $ | 483 | 22.7 | % | ||||||||
Percentage of revenue |
6.7 | % | 6.4 | % |
64
Research and development expenses increased by $0.5 million from $2.1 million for the three months ended March 31, 2017 to $2.6 million for the three months ended March 31, 2018. As a percentage of revenue, research and development expenses decreased from 6.7% for the three months ended March 31, 2017 to 6.4% for the three months ended March 31, 2018. The increase in research and development expense was primarily due to an increase in personnel-related costs of $0.3 million and increased office and occupancy costs of $0.1 million as a result of our continued hiring of research and development employees to further develop and enhance our marketplace websites and technology.
General and Administrative
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
General and administrative expense |
$ | 1,009 | $ | 1,713 | $ | 704 | 69.8 | % | ||||||||
Percentage of revenue |
3.2 | % | 4.2 | % |
General and administrative expenses increased by $0.7 million from $1.0 million for the three months ended March 31, 2017 to $1.7 million for the three months ended March 31, 2018. The increase was primarily due to increases in audit and tax-related fees and, to a lesser extent, an increase in travel-related expenses. The increase in audit and tax-related fees was primarily due to our preparation to operate as a public company.
Interest Expense
Interest expense remained consistent at $0.1 million for the three months ended March 31, 2017 and 2018 primarily due to consistent average outstanding borrowings for the comparative periods.
Quote requests
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(in thousands except percentage) | ||||||||||||||||
Quote requests |
2,961 | 3,457 | 496 | 16.8 | % |
Quote requests increased by 0.5 million from 3.0 million quote requests for the three months ended March 31, 2017 to 3.5 million quote requests for the three months ended March 31, 2018. Quote requests increased due to increased spending on online marketplace advertising.
Variable Marketing Margin
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Variable marketing margin |
$ | 8,856 | $ | 11,694 | $ | 2,838 | 32.0 | % | ||||||||
Percentage of revenue |
27.9 | % | 28.7 | % |
Variable marketing margin increased by $2.8 million from $8.9 million for the three months ended March 31, 2017 to $11.7 million for the three months ended March 31, 2018. Variable marketing margin increased in both absolute dollars and as a percentage of revenue due primarily to increased revenue per quote request as a result of increased volume and demand for consumer referrals by our insurance providers, partially offset by increased cost per quote request.
65
Comparison of the Years Ended December 31, 2016 and 2017
The following tables set forth our results of operations in dollar amounts and as percentage of total revenue for the periods shown:
Year Ended December 31, | ||||||||||||
2016 | 2017 | Change | ||||||||||
(in thousands) | ||||||||||||
Revenue |
$ | 122,778 | $ | 126,242 | $ | 3,464 | ||||||
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|
|
|
|
|||||||
Cost and operating expenses: |
||||||||||||
Cost of revenue |
5,888 | 7,745 | 1,857 | |||||||||
Sales and marketing |
105,820 | 109,473 | 3,653 | |||||||||
Research and development |
6,585 | 9,194 | 2,609 | |||||||||
General and administrative |
4,894 | 4,519 | (375 | ) | ||||||||
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|
|
|
|
|||||||
Total cost and operating expenses |
123,187 | 130,931 | 7,744 | |||||||||
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|
|||||||
Loss from operations |
(409 | ) | (4,689 | ) | (4,280 | ) | ||||||
Interest expense |
(506 | ) | (382 | ) | 124 | |||||||
|
|
|
|
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|
|||||||
Loss before income taxes |
(915 | ) | (5,071 | ) | (4,156 | ) | ||||||
Provision for income taxes |
18 | | (18 | ) | ||||||||
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|
|
|
|
|
|||||||
Net loss |
$ | (933 | ) | $ | (5,071 | ) | $ | (4,138 | ) | |||
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|
|||||||
Other Financial Data: |
||||||||||||
Quote requests |
9,508 | 12,123 | 2,615 | |||||||||
Variable marketing margin |
$ | 33,760 | $ | 37,551 | $ | 3,791 |
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Revenue |
100.0 | % | 100.0 | % | ||||
|
|
|
|
|||||
Cost and operating expenses: |
||||||||
Cost of revenue |
4.8 | 6.1 | ||||||
Sales and marketing |
86.2 | 86.7 | ||||||
Research and development |
5.4 | 7.3 | ||||||
General and administrative |
4.0 | 3.6 | ||||||
|
|
|
|
|||||
Total cost and operating expenses |
100.4 | 103.7 | ||||||
|
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|
|||||
Loss from operations |
(0.4 | ) | (3.7 | ) | ||||
Interest expense |
(0.4 | ) | (0.3 | ) | ||||
|
|
|
|
|||||
Loss before income taxes |
(0.8 | ) | (4.0 | ) | ||||
Provision for income taxes |
| | ||||||
|
|
|
|
|||||
Net loss |
(0.8 | )% | (4.0 | )% | ||||
|
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|
|
|||||
Other Financial Data: |
||||||||
Variable marketing margin |
27.5 | % | 29.7 | % |
Revenue:
Year Ended December 31, | Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Revenue |
$ | 122,778 | $ | 126,242 | $ | 3,464 | 2.8 | % |
66
Our revenue increased by $3.5 million from $122.8 million in 2016 to $126.2 million in 2017. The increase was due to an increase in revenue from our direct customers, partially offset by a decrease in revenue from our indirect distributors. Revenue from our direct channel increased by $7.3 million as a result of increased agency enrollments and increased revenue per agent. Revenue from our indirect channel decreased by $3.8 million as we continued to shift revenue to direct customers.
Cost of Revenue
Year Ended December 31, | Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of revenue |
$ | 5,888 | $ | 7,745 | $ | 1,857 | 31.5 | % | ||||||||
Percentage of revenue |
4.8 | % | 6.1 | % |
Cost of revenue increased by $1.9 million from $5.9 million in 2016 to $7.7 million in 2017. Cost of revenue increased in both dollars and as a percentage of revenue due primarily to increased software and data services costs of $0.9 million and increased hosting costs of $0.7 million.
Sales and Marketing
Year Ended December 31, | Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Sales and marketing expense |
$ | 105,820 | $ | 109,473 | $ | 3,653 | 3.5 | % | ||||||||
Percentage of revenue |
86.2 | % | 86.7 | % |
Sales and marketing expenses increased by $3.7 million from $105.8 million in 2016 to $109.5 million in 2017. The increase was primarily due to increased personnel-related costs of $1.9 million and office and increased occupancy costs of $0.7 million as we expanded headcount in our sales, marketing and customer acquisition functions. Office and occupancy costs also increased in 2017 due to the addition of a sales office in late 2016. In addition, advertising and marketing expenditures related to our social safe-driving app, EverDrive, increased by $1.7 million, while advertising expenditures related to our insurance marketplace decreased by $0.3 million due to increased consumer acquisition efficiency. These increases were partially offset by a decrease in travel expenditures of $0.3 million as inside sales personnel played a greater role in our sales strategy.
Research and Development
Year Ended December 31, | Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Research and development expense |
$ | 6,585 | $ | 9,194 | $ | 2,609 | 39.6 | % | ||||||||
Percentage of revenue |
5.4 | % | 7.3 | % |
Research and development expenses increased by $2.6 million from $6.6 million in 2016 to $9.2 million in 2017. The increase was primarily due to increased personnel-related costs of $2.2 million and increased office and occupancy costs of $0.5 million as a result of our continued hiring of research and development employees to further develop and enhance our marketplace and technology.
67
General and Administrative
Year Ended December 31, | Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
General and administrative expense |
$ | 4,894 | $ | 4,519 | $ | (375 | ) | (7.7 | )% | |||||||
Percentage of revenue |
4.0 | % | 3.6 | % |
General and administrative expenses decreased by $0.4 million from $4.9 million in 2016 to $4.5 million in 2017. The decrease was primarily due to reductions in travel expense and stock-based compensation expense included in personnel-related costs.
Interest Expense
Interest expense decreased by $0.1 million from $0.5 million in 2016 to $0.4 million in 2017 primarily as a result of the repayment of $5.1 million of principal on our note payable from a related party in 2016, partially offset by increased interest expense due to borrowings under our term loan facility.
Quote requests
Year Ended December 31, | Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(in thousands except percentage) | ||||||||||||||||
Quote requests |
9,508 | 12,123 | 2,615 | 27.5 | % |
Quote requests increased by 2.6 million from 9.5 million quote requests for the year ended December 31, 2016 to 12.1 million quote requests for the year ended December 31, 2017. We generated an increased number of quote requests in 2017 with decreased spending on our online marketplace advertising due to increased efficiency of our online marketplace advertising.
Variable Marketing Margin
Year Ended December 31, | Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Variable marketing margin |
$ | 33,760 | $ | 37,551 | $ | 3,791 | 11.2 | % | ||||||||
Percentage of revenue |
27.5 | % | 29.7 | % |
Variable marketing margin increased by $3.8 million from $33.8 million in 2016 to $37.6 million in 2017 and from 27.5% to 29.7% as a percentage of revenue. Our variable marketing margin grew as we increased the efficiency and scale of our marketplace. This was primarily related to reductions in cost per quote request and an increasing volume of quote requests resulting from continued improvement in our consumer acquisition operations.
Quarterly Results of Operations
The following table sets forth our unaudited quarterly statement of operations data, in both dollar amounts and as a percentage of total revenue, for each of the nine quarters in the period ended March 31, 2018. In managements opinion, the quarterly statement of operations data has been prepared on the same basis as the audited financial statements included in this prospectus and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. This information should be read together with our financial statements and related notes appearing at the end of this prospectus. Our operating results may fluctuate due to a variety of factors. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.
68
Seasonality
Our revenue typically increases significantly in the first quarter of each year and modestly in the third quarter of each year. Our revenue typically remains flat or decreases modestly in the second and fourth quarter of each year. Factors affecting seasonality include traditional insurance renewal patterns, budgeting and spending patterns of our insurance carrier customers, and the impact of the holiday season on consumer insurance shopping behavior. The impacts of these seasonality trends are reflected in our quarterly operating results.
Three Months Ended | ||||||||||||||||||||||||||||||||||||
Mar 31,
2016 |
Jun 30,
2016 |
Sep 30,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
Sep 30,
2017 |
Dec 31,
2017 |
Mar 31,
2018 |
||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
Revenue |
$ | 30,852 | $ | 29,309 | $ | 31,937 | $ | 30,680 | $ | 31,752 | $ | 30,017 | $ | 32,096 | $ | 32,377 | $ | 40,730 | ||||||||||||||||||
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|||||||||||||||||||
Cost and operating expenses: |
||||||||||||||||||||||||||||||||||||
Cost of revenue |
1,290 | 1,301 | 1,582 | 1,715 | 1,736 | 1,884 | 1,889 | 2,236 | 2,615 | |||||||||||||||||||||||||||
Sales and marketing |
25,156 | 25,494 | 27,745 | 27,425 | 28,427 | 26,354 | 27,604 | 27,088 | 35,023 | |||||||||||||||||||||||||||
Research and development |
1,454 | 1,477 | 1,708 | 1,946 | 2,131 | 2,100 | 2,441 | 2,522 | 2,614 | |||||||||||||||||||||||||||
General and administrative |
1,150 | 1,284 | 1,247 | 1,213 | 1,009 | 1,259 | 1,181 | 1,070 | 1,713 | |||||||||||||||||||||||||||
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Total cost and operating expenses |
29,050 | 29,556 | 32,282 | 32,299 | 33,303 | 31,597 | 33,115 | 32,916 | 41,965 | |||||||||||||||||||||||||||
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|||||||||||||||||||
Income (loss) from operations |
1,802 | (247 | ) | (345 | ) | (1,619 | ) | (1,551 | ) | (1,580 | ) | (1,019 | ) | (539 | ) | (1,235 | ) | |||||||||||||||||||
Interest expense |
(173 | ) | (160 | ) | (115 | ) | (58 | ) | (67 | ) | (85 | ) | (116 | ) | (114 | ) | (93 | ) | ||||||||||||||||||
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Income (loss) before income taxes |
1,629 | (407 | ) | (460 | ) | (1,677 | ) | (1,618 | ) | (1,665 | ) | (1,135 | ) | (653 | ) | (1,328 | ) | |||||||||||||||||||
Provision for income taxes |
| | | 18 | | | | | | |||||||||||||||||||||||||||
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Net income (loss) |
$ | 1,629 | $ | (407 | ) | $ | (460 | ) | $ | (1,695 | ) | $ | (1,618 | ) | $ | (1,665 | ) | $ | (1,135 | ) | $ | (653 | ) | $ | (1,328 | ) | ||||||||||
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Other Financial and Operational Data: |
|
|||||||||||||||||||||||||||||||||||
Quote requests |
2,004 | 2,011 | 2,728 | 2,765 | 2,961 | 2,950 | 3,228 | 2,984 | 3,457 | |||||||||||||||||||||||||||
Variable marketing margin(1) |
$ | 9,541 | $ | 7,899 | $ | 8,656 | $ | 7,664 | $ | 8,856 | $ | 9,108 | $ | 9,498 | $ | 10,089 | $ | 11,694 | ||||||||||||||||||
Adjusted EBITDA(1) |
$ | 2,637 | $ | 604 | $ | 514 | $ | (771 | ) | $ | (676 | ) | $ | (785 | ) | $ | (268 | ) | $ | 260 | $ | (374 | ) |
69
(1) | See Selected Financial and Other DataNon-GAAP Financial Measures for information regarding our use of these non-GAAP financial measures. |
Three Months Ended | ||||||||||||||||||||||||||||||||||||
Mar 31,
2016 |
Jun 30,
2016 |
Sep 30,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
Sep 30,
2017 |
Dec 31,
2017 |
Mar 31,
2018 |
||||||||||||||||||||||||||||
Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
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Cost and operating expenses: |
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Cost of revenue |
4.2 | 4.4 | 5.0 | 5.6 | 5.5 | 6.3 | 5.9 | 6.9 | 6.4 | |||||||||||||||||||||||||||
Sales and marketing |
81.5 | 87.0 | 86.9 | 89.4 | 89.5 | 87.8 | 86.0 | 83.7 | 86.0 | |||||||||||||||||||||||||||
Research and development |
4.7 | 5.0 | 5.3 | 6.3 | 6.7 | 7.0 | 7.6 | 7.8 | 6.4 | |||||||||||||||||||||||||||
General and administrative |
3.7 | 4.4 | 3.9 | 4.0 | 3.2 | 4.2 | 3.7 | 3.3 | 4.2 | |||||||||||||||||||||||||||
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Total cost and operating expenses |
94.1 | 100.8 | 101.1 | 105.3 | 104.9 | 105.3 | 103.2 | 101.7 | 103.0 | |||||||||||||||||||||||||||
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Income (loss) from operations |
5.9 | (0.8 | ) | (1.1 | ) | (5.3 | ) | (4.9 | ) | (5.3 | ) | (3.2 | ) | (1.7 | ) | (3.0 | ) | |||||||||||||||||||
Interest expense |
(0.6 | ) | (0.5 | ) | (0.4 | ) | (0.2 | ) | (0.2 | ) | (0.3 | ) | (0.4 | ) | (0.4 | ) | (0.2 | ) | ||||||||||||||||||
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Income (loss) before income taxes |
5.3 | (1.3 | ) | (1.5 | ) | (5.5 | ) | (5.1 | ) | (5.6 | ) | (3.6 | ) | (2.1 | ) | (3.2 | ) | |||||||||||||||||||
Provision for income taxes |
| | | 0.1 | | | | | | |||||||||||||||||||||||||||
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Net income (loss) |
5.3 | % | (1.3 | )% | (1.5 | )% | (5.6 | )% | (5.1 | )% | (5.6 | )% | (3.6 | )% | (2.1 | )% | (3.2 | )% | ||||||||||||||||||
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Reconciliation of revenue less advertising expense to variable marketing margin:
Three Months Ended | ||||||||||||||||||||||||||||||||||||
Mar 31,
2016 |
Jun 30,
2016 |
Sep 30,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
Sep 30,
2017 |
Dec 31,
2017 |
Mar 31,
2018 |
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(in thousands) | ||||||||||||||||||||||||||||||||||||
Revenue |
$ | 30,852 | $ | 29,309 | $ | 31,937 | $ | 30,680 | $ | 31,752 | $ | 30,017 | $ | 32,096 | $ | 32,377 | $ | 40,730 | ||||||||||||||||||
Less: total advertising expense |
(21,320 | ) | (21,489 | ) | (23,328 | ) | (23,060 | ) | (23,161 | ) | (21,429 | ) | (23,043 | ) | (22,838 | ) | (29,592 | ) | ||||||||||||||||||
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Revenue less advertising expense |
9,532 | 7,820 | 8,609 | 7,620 | 8,591 | 8,588 | 9,053 | 9,539 | 11,138 | |||||||||||||||||||||||||||
Add: other advertising expense 1 |
9 | 79 | 47 | 44 | 265 | 520 | 445 | 550 | 556 | |||||||||||||||||||||||||||
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Variable marketing margin |
$ | 9,541 | $ | 7,899 | $ | 8,656 | $ | 7,664 | $ | 8,856 | $ | 9,108 | $ | 9,498 | $ | 10,089 | $ | 11,694 | ||||||||||||||||||
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(1) | Other advertising expenses consist of general advertising costs that are designed to promote the business, attract insurance providers or produce results other than generating online marketplace traffic, such as increasing downloads of our EverDrive safe driver app. They are not directly related to generating revenue or online marketplace traffic, and as such are excluded by management from the calculation of VMM. |
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Reconciliation of Net Income (Loss) to Adjusted EBITDA:
Three Months Ended | ||||||||||||||||||||||||||||||||||||
Mar 31, | Jun 30, | Sep 30, | Dec 31, | Mar 31, | Jun 30, | Sep 30, | Dec 31, | Mar 31, | ||||||||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2017 | 2017 | 2017 | 2017 | 2018 | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
Net income (loss) |
$ | 1,629 | $ | (407 | ) | $ | (460 | ) | $ | (1,695 | ) | $ | (1,618 | ) | $ | (1,665 | ) | $ | (1,135 | ) | $ | (653 | ) | $ | (1,328 | ) | ||||||||||
Stock-based compensation |
495 | 503 | 508 | 450 | 471 | 468 | 433 | 488 | 567 | |||||||||||||||||||||||||||
Depreciation and amortization |
340 | 348 | 351 | 398 | 404 | 327 | 318 | 311 | 294 | |||||||||||||||||||||||||||
Interest expense |
173 | 160 | 115 | 58 | 67 | 85 | 116 | 114 | 93 | |||||||||||||||||||||||||||
Provision for income taxes |
| | | 18 | | | | | | |||||||||||||||||||||||||||
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Adjusted EBITDA |
$ | 2,637 | $ | 604 | $ | 514 | $ | (771 | ) | $ | (676 | ) | $ | (785 | ) | $ | (268 | ) | $ | 260 | $ | (374 | ) | |||||||||||||
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Liquidity and Capital Resources
Since our inception, we have primarily funded our operations through issuances of shares of our convertible preferred stock and common stock, debt and cash flows from operations. As of March 31, 2018, we had cash of $2.6 million and availability of $5.2 million on a revolving line of credit under our amended Loan and Security Agreement.
As of December 31, 2017, we had a term loan with an outstanding principal balance of $2.6 million and a $6.0 million revolving line of credit with an outstanding balance of $2.0 million under our amended Loan and Security Agreement. Borrowings under the revolving line of credit could not exceed 80% of eligible accounts receivable balances and bore interest at an annual rate of 0.5% above the greater of 3.5% or the prime rate (5.0% as of December 31, 2017). The term loan was repayable in 36 equal monthly installments through August 2019 and accrued interest at an annual rate of 2.0% above the greater of 3.5% or the prime rate (6.50% as of December 31, 2017). Borrowings under the amended Loan and Security Agreement were collateralized by substantially all of our assets and property. Under the amended Loan and Security Agreement, we agreed to affirmative and negative covenants to which we will remain subject until maturity. These covenants included limitations on our ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. The amended Loan and Security Agreement required us to maintain two financial covenants: a minimum asset coverage ratio of 1.35 to 1 and an actual-to-plan performance metric of at least 65%. Events of default under the amended Loan and Security Agreement included failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to us.
On March 16, 2018, we entered into a Loan and Security Modification Agreement, or the 2018 Loan Modification, to modify our amended Loan and Security Agreement. This agreement increased the revolving line of credit to $11.0 million, extended the maturity date of the revolving line of credit to March 2020 and eliminated the term loan. Borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances and bear interest at 0.5% above the greater of 4.25% or the prime rate (5.25% as of March 31, 2018). Borrowings are collateralized by substantially all of our assets and property. We are still subject to affirmative and negative covenants to which we will remain subject until maturity. These covenants include limitations on our ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses. In addition, we are required to maintain a minimum asset coverage ratio of 1.5 to 1 calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. Events of default under the 2018 Loan Modification include failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to us. In the event of a default, the lender may declare all borrowings immediately due and payable.
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The terms of the 2018 Loan Modification required that the existing outstanding term loan under the Loan and Security Agreement be repaid. Accordingly, on March 27, 2018, we used $2.3 million of proceeds from the revolving line of credit to repay the outstanding principal balance. As of March 31, 2018, $5.2 million remained available for borrowing under the revolving line of credit.
Since our inception, we have incurred recurring losses and may continue to incur losses in the foreseeable future. We believe our existing cash, together with liquidity available from our revolving line of credit will be sufficient to fund our operating expenses and capital expenditure requirements through at least March 2019. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on business initiatives, purchases of capital equipment to support our growth, the expansion of sales and marketing activities, expansion of our business through acquisitions or our investments in complementary offerings, technologies or businesses, market acceptance of our platform and overall economic conditions. If we do not achieve our revenue goals as planned or if the debt becomes immediately due and payable, we believe that we can reduce our operating costs, pay down our outstanding debt and achieve positive cash flow from operations. If we need additional funds and are unable to obtain funding on a timely basis, we may need to significantly curtail our operations in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.
Cash Flows
The following table shows a summary of our cash flows for each of the years ended December 31, 2016 and 2017 and for each of the three months ended March 31, 2017 and 2018:
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 5,485 | $ | (1,672 | ) | $ | (548 | ) | $ | (843 | ) | |||||
Net cash used in investing activities |
(1,083 | ) | (1,185 | ) | (394 | ) | (654 | ) | ||||||||
Net cash provided by (used in) financing activities |
6,811 | (7,180 | ) | (9,224 | ) | 1,713 | ||||||||||
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Net increase (decrease) in cash |
$ | 11,213 | $ | (10,037 | ) | $ | (10,166 | ) | $ | 216 | ||||||
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Net cash provided by (used in) operating activities
During the three months ended March 31, 2017, operating activities used $0.5 million of cash, primarily resulting from our net loss of $1.6 million. This was offset by cash provided by changes in our operating assets and liabilities of $0.1 million and net non-cash charges of $0.9 million. Net cash provided by changes in our operating assets and liabilities for the three months ended March 31, 2017 consisted of an aggregate $0.4 million net increase in accounts payable, accrued expenses and other current liabilities and deferred revenue, partially offset by an aggregate increase of $0.3 million in accounts receivable, prepaid expenses, other current assets and other assets. Changes in accounts receivable, accounts payable and accrued expenses, and prepaid expenses and other current assets were generally due to growth in our business, timing of customer and vendor invoicing and payments.
During the three months ended March 31, 2018, operating activities used $0.8 million of cash, primarily resulting from our net loss of $1.3 million and net cash used by changes in our operating assets and liabilities of $0.5 million, partially offset by net non-cash charges of $1.0 million. Net cash used by changes in our operating assets and liabilities for three months ended March 31, 2018 consisted primarily of a $5.5 million increase in accounts receivable and a $0.3 million increase in prepaid and other current assets, partially offset by an aggregate $5.1 million increase in accounts payable and accrued expenses and other current liabilities and a $0.1 million increase in deferred revenue. Changes in accounts receivable, accounts payable and accrued expenses were generally due to growth in our business, timing of customer and vendor invoicing and payments.
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During the year ended December 31, 2016, operating activities provided $5.5 million of cash, primarily resulting from net cash provided by changes in our operating assets and liabilities of $2.9 million and non-cash charges of $3.5 million, partially offset by our net loss of $0.9 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2016 consisted of an aggregate $3.8 million increase in accounts payable and accrued expenses and other current liabilities, partially offset by increases of $0.5 million in each of accounts receivable and other assets. The increase in other assets was due to increases in restricted cash for our credit cards and increased security deposits for our office leases. Changes in accounts receivable, accounts payable and accrued expenses, and prepaid expenses were generally due to growth in our business, timing of customer and vendor invoicing and payments.
During the year ended December 31, 2017, operating activities used $1.7 million of cash, primarily resulting from our net loss of $5.1 million and net cash used by changes in our operating assets and liabilities of $0.4 million, partially offset by net non-cash charges of $3.8 million. Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2017 consisted primarily of a $2.5 million increase in accounts receivable, partially offset by an aggregate $2.0 million increase in accounts payable and accrued expenses and other current liabilities. Changes in accounts receivable and accounts payable and accrued expenses were generally due to growth in our business, timing of customer and vendor invoicing and payments.
Net cash used in investing activities
Net cash used in investing activities was $0.4 million and $0.7 million for the three months ended March 31, 2017 and 2018, respectively. In the three months ended March 31, 2017, we used $0.4 million to acquire property and equipment, which included the capitalization of $0.1 million of software development costs. In the three months ended March 31, 2018, we used $0.7 million to acquire property and equipment, which included the capitalization of $0.5 million of software development costs. Acquisitions of property and equipment generally include the purchase of computer equipment for our operations and employees, equipment, furniture and leasehold improvements and the capitalization of certain software development costs.
Net cash used in investing activities was $1.1 million and $1.2 million for the years ended December 31, 2016 and 2017, respectively. In 2016, we used $1.1 million to acquire property and equipment, which included the capitalization of $0.5 million of software development costs. In 2017, we used $1.2 million to acquire property and equipment, which included the capitalization of $0.7 million of software development costs. Acquisitions of property and equipment generally include the purchase of computer equipment for our operations and employees, equipment, furniture and leasehold improvements and the capitalization of certain software development costs.
Net cash provided by (used in) financing activities
During the three months ended March 31, 2017, net cash used in financing activities was $9.2 million, consisting primarily of cash used to repurchase common stock of $9.2 million and principal payments made on our term loan of $0.4 million, partially offset by proceeds received from the exercise of common stock options of $0.4 million.
During the three months ended March 31, 2018, net cash provided by financing activities was $1.7 million, consisting primarily of $3.8 million of net borrowings from our revolving line of credit and $0.6 million of proceeds received from the exercise of stock options, partially offset by a $2.6 million repayment of our previous outstanding term loan.
During the year ended December 31, 2016, net cash provided by financing activities was $6.8 million, consisting primarily of net proceeds from the sales of preferred stock of $35.5 million, net proceeds received from borrowings under our term loan of $1.2 million and exercise of common stock options of $0.6 million, all partially offset by cash used to repurchase common stock of $19.4 million, repayment of an outstanding note payable to a related party of $5.1 million and net repayments on our revolving line of credit of $6.0 million.
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During the year ended December 31, 2017, net cash used in financing activities was $7.2 million, consisting primarily of cash used to repurchase common stock of $9.2 million and principal payments made on our term loan of $1.5 million, partially offset by proceeds received from net draw downs on our revolving line of credit of $2.0 million and exercise of common stock options of $1.5 million.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2017:
Payments Due By Period | ||||||||||||||||||||
Total |
Less Than 1
Year |
1 to 3 Years |
4 to
5 Years |
More Than
5 Years |
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(in thousands) | ||||||||||||||||||||
Operating lease commitments(1) |
$ | 12,762 | $ | 1,514 | $ | 3,857 | $ | 3,986 | $ | 3,405 | ||||||||||
Debt obligations(2) |
4,831 | 3,682 | 1,149 | | | |||||||||||||||
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Total |
$ | 17,593 | $ | 5,196 | $ | 5,006 | $ | 3,986 | $ | 3,405 | ||||||||||
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(1) | Amounts in table reflect payments due for our office leases in Cambridge, Massachusetts and Woburn, Massachusetts under operating lease agreements that expire at various dates through 2024. |
(2) | Amounts in table reflect the contractually required principal and interest payments payable pursuant to our outstanding term loan as of December 31, 2017. For purposes of this table, the interest due under the term loan and revolving line of credit was calculated using an assumed interest rate of 6.5% and 5.0% per annum, respectively, which were the interest rates in effect as of December 31, 2017. |
In connection with the refinancing of the outstanding borrowings under the Loan and Security Agreement, or the 2018 Loan Modification, that was executed on March 16, 2018, we extended the due date of the revolving line of credit to March 2020. As a result, principal and interest payments under the 2018 Loan Modification will be $0.6 million in 2018, $0.2 million in 2019 and $4.3 million in 2020 based on the amounts outstanding as of December 31, 2017. See Liquidity and Capital Resources
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our audited financial statements and unaudited condensed financial statements, both appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
Our revenue is derived from sales of consumer referrals. We recognize revenue in accordance with Accounting Standards Codification Topic 605 Revenue Recognition, or ASC 605. Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sellers price to the buyer is fixed or determinable, and collectability is reasonably assured. We recognize revenue from the sale of consumer referrals upon the delivery of the referral to our insurance provider customer.
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We record revenue from sales of consumer referrals net of credits and other applicable allowances in the same period in which the related sales are recorded, based on the underlying contract terms.
Effective January 1, 2019, we will be required to adopt Accounting Standard Codification Topic 606, Revenue from Contracts with Customers, or ASC 606. We are currently evaluating the method of adoption and the potential impact to our financial statements.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions and apply the graded-vesting method to all awards with both service-based and performance-based vesting conditions.
We measure the fair value of stock-based awards granted to non-employees on the date at which the related service is complete. Compensation expense is recognized over the period during which services are rendered by such non-employee consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model for options.
We estimate the fair value of stock options using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield. We estimate the fair value of each restricted stock unit, or RSU, using the fair value of common stock.
Determination of the Fair Value of Common Stock
As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each award grant, with input from management, considering our most recently available third-party valuations of our common stock and our board of directors assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our common stock valuations were prepared using a hybrid method, which used market approaches to estimate our total enterprise value. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more of the scenarios is calculated using an option pricing method, or OPM. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a companys securities changes. Under this method, the common stock has value only if the funds available for distribution to shareholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for our company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. These third-party valuations were performed at various dates, which resulted in valuations of our common stock of $55.70 per share as of March 31, 2017, $58.01 per share as of December 31, 2017 and $83.34
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per share as of March 31, 2018. In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be a date later than the most recent third-party valuation date, including:
| our historical operating and financial performance; |
| the market performance of comparable publicly traded companies within our industry; |
| secondary transactions in our common stock; |
| external market conditions affecting our industry, and trends within our industry; |
| the identification and analysis of mergers and acquisitions of comparable companies; |
| the prices, rights, preferences and privileges of our convertible preferred stock relative to the common stock; |
| the likelihood of achieving a liquidity event such as an initial public offering or sale given prevailing market conditions and the nature and history of our business; |
| any adjustments necessary to recognize a lack of marketability for our common stock; |
| our financial position, including cash on hand, and our historical and forecasted performance and operating results; and |
| U.S. economic market conditions. |
The assumptions underlying these valuations represent managements best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different.
Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for stock-based awards, as the fair value of our common stock will be its trading price in the public market.
Grants of Share-Based Awards
The following table sets forth by grant date the number of common stock subject to options and RSUs granted since January 1, 2017, the per share exercise price of the options, the fair value per common share on each grant date, and the per share estimated fair value of the award:
Grant Date |
Award Type |
Number of
Shares Subject to Grants |
Per Share
Exercise Price of Options |
Per Share
Fair Value of Common Stock on Grant Date |
Per Share
Estimated Fair Value of Award |
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April 26, 2017 |
Stock option | 50,500 | $ | 55.70 | $ | 55.70 | $ | 26.33 | ||||||||||
July 19, 2017 |
Stock option | 19,300 | $ | 55.70 | $ | 55.70 | $ | 26.11 | ||||||||||
July 19, 2017 |
RSU | 9,000 | | $ | 55.70 | $ | 55.70 | |||||||||||
October 18, 2017 |
Stock option | 40,860 | $ | 55.70 | $ | 55.70 | $ | 26.10 | ||||||||||
January 24, 2018 |
Stock option | 33,505 | $ | 58.01 | $ | 58.01 | $ | 30.65 | ||||||||||
May 1, 2018 |
Stock option | 106,500 | $ | 83.34 | $ | 83.34 | $ | 40.15 | ||||||||||
May 1, 2018 |
RSU | 12,998 | | $ | 83.34 | $ | 83.34 |
Fair Value of Redeemable Convertible Preferred Stock
We carry our redeemable convertible preferred stock at its redemption value on our balance sheet. We record changes in redemption value at the end of each reporting period as an increase or decrease to net loss attributable to common stockholders.
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After June 30, 2028, shares of our Series B and Series B-1 preferred stock (if then outstanding) are redeemable in an amount per share equal to the greater of the original issue price or the adjusted fair market value, as defined in our certificate of incorporation, plus all accrued but unpaid dividends thereon. As there has been no public market for our preferred stock to date, the adjusted fair market value of our preferred stock has been determined by management as of each reporting date based, in part, on the results of third-party valuations of our preferred stock performed as of each reporting date as well as managements assessment of additional objective and subjective factors that it believed were relevant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our preferred stock valuations at each reporting date were prepared using a PWERM, which used a combination of market and income approaches to estimate our enterprise value.
The assumptions underlying these valuations represent managements best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the estimated fair values of our preferred stock could be materially different.
Upon the closing of this offering, all of our preferred stock will convert into shares of our Class B common stock and it will no longer be necessary for us to estimate or account for changes in the redemption value of our preferred stock.
Capitalization of Website and Software Development Costs
We capitalize certain costs associated with the development of our websites and internal-use software after the preliminary project stage is complete and until the software is ready for its intended use. Research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance, and administration or overhead costs are expensed as incurred. Capitalization begins when the preliminary project stage is complete, management, with the relevant authority, authorizes and commits to the funding of the software project, it is probable the project will be completed, the software will be used to perform the functions intended and certain functional and quality standards have been met. Qualified costs incurred during the operating stage of our software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to, internal-use software are expensed as incurred.
Capitalized software development costs are amortized on a straight-line basis over their estimated useful life of three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
During the years ended December 31, 2016 and 2017, we capitalized $0.5 million and $0.7 million of website and internal-use software development costs, respectively. During the three months ended March 31, 2017 and 2018, we capitalized $0.1 million and $0.5 million of website and internal-use software development costs, respectively. We recorded amortization expense associated with our capitalized website and internal-use software development costs of $0.4 million and $0.5 million, for the years ended December 31, 2016 and 2017, respectively. We recorded amortization expense associated with our capitalized website and internal-use software development costs of $0.1 million for the three months ended March 31, 2017 and 2018.
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by enacted tax rates anticipated to be in effect when these differences reverse. This method also requires the recognition of future tax benefits to the extent that
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realization of such benefits is more likely than not. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, we establish a valuation allowance through a charge to income tax expense. We evaluate the potential for recovery of deferred tax assets by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our audited financial statements and Note 2 to our unaudited condensed financial statements, both appearing at the end of this prospectus.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
Inflation Risk
During the last two years, inflation and changing prices have not had a material effect on our business. We are unable to predict whether inflation or changing prices will materially affect our business in the foreseeable future.
Quantitative and Qualitative Disclosures about Market Risks
We have a credit agreement that provides us with a revolving line of credit of up to $11.0 million. Borrowings bear interest at a floating rate, which is 0.5% above the greater of 4.25% or the prime rate.
As of March 31, 2018, we had outstanding borrowings under our revolving line of credit of $5.8 million bearing interest at a rate of 5.25%. Changes in interest rates could cause interest charges on our revolving line of credit to fluctuate. Based on the amount of total borrowings outstanding as of March 31, 2018, an increase or decrease of 10% in the prime rate as of March 31, 2018 would cause a corresponding increase or decrease to our net loss and cash flows of less than $0.1 million, assuming that such rate were to remain in effect for a year.
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Company Overview
EverQuote makes insurance shopping easy, efficient and personal, saving consumers and insurance providers time and money.
We operate the largest online marketplace for insurance shopping in the United States. Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. With over 10 million consumer visits per month, our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests.
Consumers may view insurance as a simple commodity with standard pricing. However, finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.
Insurance providers operate in a highly competitive and regulated industry and typically specialize on pre-determined subsets of consumers. As a result, not every consumer is a good match for every provider, and providers struggle to reach the segments that are most desirable for their business models. Traditional offline and online advertising channels reach broad audiences but lack the fine-grained consumer acquisition capabilities needed for optimally matching consumers to specific insurance products. We connect providers to a large volume of high-intent, pre-validated consumer referrals that match the insurers specific requirements. The transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance providers to evaluate the performance of their marketing spend on our platform and manage their own return on investment. We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback.
The EverQuote platform is powered by data science. Our rich data assets and proprietary algorithms efficiently attract consumers, match them with relevant insurance providers and drive our overall business model. These assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018. We utilize our data assets throughout our business, from advertising and consumer acquisition to the innovation of new consumer and provider experiences, as well as to guide our strategic direction. As our data assets grow, our algorithms become more powerful. We believe our data science capabilities give us a significant competitive advantage.
Our marketplace benefits from significant network effects. As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs,
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leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.
We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. Our revenue grew from $45.6 million in 2013 to $126.2 million in 2017, representing a compound annual growth rate of 29.0%. In 2016 and 2017, our total revenue was $122.8 million and $126.2 million, respectively, representing year-over-year growth of 2.8%. In the three months ended March 31, 2017 and 2018, our revenue was $31.8 million and $40.7 million, respectively, representing quarter-over-quarter growth of 28.3%. We had a net loss of $0.9 million in 2016 and a net loss of $5.1 million in 2017, and had $3.0 million and $(1.5) million in adjusted EBITDA in 2016 and 2017, respectively. We had net losses of $1.6 million and $1.3 million for the three months ended March 31, 2017 and 2018, respectively, and had $(0.7) million and $(0.4) million in adjusted EBITDA for the three months ended March 31, 2017 and 2018, respectively. See the section titled Selected Financial and Other DataNon-GAAP Financial Measures for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the United States, or GAAP.
Industry Overview
Insurance is one of the largest segments of the United States economy, with non-health insurance premiums over $1.2 trillion in 2016. Based on data from S&P Global Market Intelligence; SNL Insurance Data, we estimate that automotive, home, life, commercial, renters insurance policies accounted for $991 billion of premiums in 2016.
The insurance industry is highly competitive and diverse. There are over 1,500 carriers operating in non-health insurance markets in the United States, but the largest carrier accounted for less than 6% of total premiums in 2016, according to data from S&P Global Market Intelligence; SNL Insurance Data. In addition, we estimate there are approximately 100,000 agencies in the United States who sell insurance products across the auto, home, life, commercial and renters insurance markets.
Insurance marketing spend is large and evolving
To capture new policies and retain existing customers, insurance providers advertise across a broad range of online and offline marketing channels, devoting significant resources to sales and distribution. Separately, the internet has become increasingly influential in consumer insurance shopping, with more than 70% of insurance consumers shopping online according to a 2015 comScore survey. While insurance providers are reallocating marketing spend from traditional media sources to online media channels, we believe the shift of marketing budgets online continues to lag the shift in consumer behavior.
Based on carrier online advertising and agent marketing spend, we estimate that we have an immediate opportunity in excess of $2.6 billion per year, with a total addressable market over the long term of $120 billion annually. Given the continued shift toward online channels over traditional media and the ongoing growth in agents, we expect our immediate opportunity to expand in the future:
| U.S. non-health insurance carriers spent $121 billion in marketing and distribution in 2016, consisting of $112 billion in commissions to agents and $9 billion in direct advertising, according to data from S&P Global Market Intelligence; SNL Insurance Data. Online insurance advertising spend of North American insurance carriers was $1.3 billion in 2016, up 16% from 2015, according to eMarketer and Kantar Media. We believe that carriers will continue to shift advertising dollars online in order to capitalize on the superior marketing characteristics of digital channels. |
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| According to the Independent Insurance Agents & Brokers of America, or the IIABA, U.S. insurance agencies spent, on average, $13,200 on marketing in 2015, up from $10,600 in 2014. Based on 2015 average spend and our estimate of approximately 100,000 active insurance agencies, we believe that insurance agencies alone spent over $1.3 billion in 2015 on marketing. In addition, the IIABA data show that online activities were the highest ranked priorities for agencies marketing budgets. |
| Online advertising represents only 2% of total marketing spend in the insurance industry, compared to 27%, 37% and 57% in the travel, lodging and automobile marketing industries, according to IDC, Phocuswright and Borrell Associates. |
Insurance products are complex and highly regulated
While insurance may be perceived by consumers as a commodity, it is complex and must be configured to match each consumers particular circumstances. In the United States, regulatory requirements vary state by state, with each state having different actuarial standards, statutory requirements and regulations, and there are numerous types and levels of coverage, bundling and discounts available from each provider. These complexities make it challenging for consumers to compare and choose from among the hundreds of available insurance providers and coverage combinations.
The modification of insurance rates and policy forms is an onerous and cumbersome state-by-state process that, in many states, can take months and require document submissions consisting of thousands of pages, and limits the consumer attributes that may be considered in setting rates. As a result, insurance providers have limited ability to quickly adjust their pricing in response to losses or changes in market conditions and lack the ability to price policies dynamically to match expected customer value, attributes and behavior.
Insurance products are not priced in a uniform manner. Pricing strategies vary across providers and assessment of individual consumer risk is based on pre-set consumer attributes, such as vehicle type and location. Each consumer-to-product pairing yields a specific rate based on static rate tables filed semi-annually or annually with state regulators, with pricing that may vary widely across insurance providers and consumer profiles. Consumers seeking insurance are often unaware of any given insurance providers product strategies, strengths or offerings, which may lead to suboptimal shopping and significant inefficiencies for consumers and providers.
Insurance shopping is being enabled by new digital tools
We expect that the ongoing shift to online insurance shopping by consumers and the increasing digitization of insurance risk assessment and workflows will enable more personal, end-to-end shopping experiences, products and services. Moreover, emerging online agencies and digital carriers launched to take advantage of these trends are typically directed towards niche audiences and have limited marketing budgets, making capturing the right consumers challenging for them. We believe that the confluence of these factors favors business models that efficiently match supply and demand, allowing insurance providers to capture consumers purchase intent online while taking advantage of the benefits of targeted digital advertising.
Insurance agents are an essential and growing part of the industry landscape
Despite the trend toward online shopping, insurance agents play an essential role in the insurance buying process. According to a 2015 comScore survey, while more than 70% of insurance consumers shop online, 80% of policies purchased are closed offline by insurance agents, and consumers frequently cited the desire to speak to an agent as the top reason for not buying online.
We estimate there are approximately 100,000 agencies in the United States who sell insurance products across the auto, home, life, commercial and renters insurance markets. The number of insurance agents continues to grow, with employment in the U.S. insurance sales agent and broker sector increasing from 318,000 to 385,000 between 2010 and 2016, as reported by the Bureau of Labor Statistics. Non-health insurance agents earned over $112 billion in commissions from carriers in 2016, growing from $94 billion in 2010, according to data from S&P Global Market Intelligence; SNL Insurance Data.
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Market Opportunity
The challenges faced in the $120 billion non-health insurance sales, marketing and distribution market create a significant opportunity for companies that can efficiently align consumers and providers. These challenges include:
Misalignment of providers and consumers creates an inefficient match between supply and demand
As a result of pricing and regulatory complexity, insurance providers typically specialize on pre-determined sub-sets of consumers across products, sales, claims processing and support functions to optimize their business models for profitability and expected loss ratios. At the same time, consumers struggle to make informed buying decisions due to the large number of providers, breadth of insurance products and services available, and opaque pricing and coverage options. The inability for insurance providers to attract only those consumers who match their optimal risk profiles, combined with the lack of comprehensive information for consumers, creates a supply and demand misalignment.
Complex, fragmented and opaque market for consumers
Selecting the right insurance provider is challenging for consumers as there are more than 1,500 insurance carriers in the United States, each with different risk-assessment requirements, product offerings and pricing. Consumers have distinct attributes and insurance needs and historically have lacked access to comprehensive tools for identifying and connecting with the right providers. Moreover, pricing for the same coverage can vary widely from one provider to another, and even across different sales channels within the same provider. While consumers seek competitive pricing, they are often unaware of pricing differences, the level of coverage needed for their particular circumstances, and any given insurance providers product strategies, strengths or offerings. These market conditions may lead to suboptimal shopping, significant inefficiencies for consumers and the need for expert advice and support to make informed decisions.
Inefficient advertising channels for insurance providers
Advertising for insurance providers is challenging and its effectiveness is limited by several factors:
| Insurance providers require extensive information about demographic and behavioral attributes in order to determine pricing and the policy value of a given consumer. This information is either unavailable or unreliable for targeting through traditional online and offline channels. In addition, traditional channels lack the ability to identify and segment providers existing customers, limiting the utility of these channels for retention. |
| Due to regulatory constraints, providers require long lead times to reprice their products. As a result, carriers may find their products mispriced to risk of loss across large consumer segments for extended periods of time. Traditional channels, and in particular television, lack the fine-grained controls to quickly and selectively adjust consumer acquisition strategies and align advertising spend with loss tolerance. |
| Providers are constrained in their ability to tailor premiums to individuals due to the regulatory environment and, as a result, cannot price competitively for every consumer. With traditional online and offline advertising, providers often pay to attract consumers who are unlikely to convert due to pricing mismatches. |
Due to these factors, traditional advertising channels are inefficient for insurance providers.
Our Solution
Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. Our results-driven marketplace, powered by
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our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money.
Proprietary, data-driven technology platform
Our platform efficiently attracts consumers shopping for insurance to our websites and mobile applications and matches them with relevant providers for streamlined quoting. This enables us to maintain high levels of quality control and refer real-time quote requests to our insurance provider customers at the moment of the consumers purchase intent.
Bid
We advertise to consumers under the EverQuote brand across hundreds of online channels including internet search, email, social media and display advertising. Our algorithms efficiently manage over 175 million advertising impressions per day, utilizing insights from our proprietary data assets and A/B testing to optimize bids, advertising creatives and placements across channels. In order to attract high-quality consumers to our websites and mobile applications at optimal cost, we continuously analyze and test the effectiveness of our advertising and use automated dynamic adjustments to our traffic acquisition efforts. We store all of our advertising placement data in our central data warehouse and provide our data scientists, analysts and engineers with broad access to optimize our consumer acquisition activities.
Quote request
At quote request, consumers submit approximately 20 to 50 items of data, depending on the type of insurance, representing the majority of data required by providers for matching, quoting and binding. This information is securely exchanged with insurance providers at the moment of referral, enabling providers to produce quotes quickly, with minimal additional steps and information needs. In April 2018, we matched and referred over 1 million quote requests to insurance providers quoting and binding workflows.
Bind
We combine consumer-submitted information and our internal data with proprietary machine learning algorithms to optimize matching and bind rates for consumers and insurance providers. Based on insurance provider feedback, we are consistently one of their largest, high-quality sources for efficient acquisition of insurance customers.
Retention
Our platform enables insurance providers to identify and run campaigns for their existing customers and provide retention-oriented offers alongside the other options being presented.
How we engage with consumers
We engage with consumers through user-friendly and easy-to-navigate websites that make shopping for insurance easy, cost-effective and more personal. We guide consumers through the process of submitting a quote request with simple instructions and helpful information about how their profile and choices may affect their results. Upon completing their quote requests, consumers are connected with relevant options from our comprehensive provider network, allowing them to quickly and easily compare coverage options. We aim to make the end-to-end shopping experience seamless by enabling consumers to securely share their data with matched providers, accelerating quoting and reducing repetition in the shopping process.
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We also engage consumers through EverDrive, our social safe-driving mobile app, which monitors driving behavior and provides useful information, coaching and encouragement to help users become safer drivers. Our driver score feature gives users a simple rating system and allows them to compete with friends, family and their local community.
In addition, we provide consumers with rich content through our Safe Driving and Insurance blog. We cover complex topics, such as deductibles, coverage levels and distracted driving in simple, approachable ways to help consumers better understand and navigate the complexities of insurance coverage.
How we engage with insurance providers
Insurance carriers and agents connect with our marketplace through EverQuote Pro, our web-based provider portal. EverQuote Pro matches insurance carriers and agents with consumers who complete quote requests on our websites. Our portal provides transparent, secure access to marketplace data regarding consumer type, volume and referral pricing, along with sophisticated campaign management tools for targeting consumers based on a wide array of attributes.
Providers in our marketplace bid for consumer referrals based on either pre-defined segments or dynamic profiles. Bids may be static or dynamically adjusted based on specified criteria, such as consumer attributes, time of day and geographic location. Regardless of bidding mechanism, insurance providers in our marketplace participate in a unified, real-time auction that matches consumers with the most relevant providers on our platform based on bid, preferred consumer profile, predicted bind rate and other factors. Through this auction process, we align provider economics with consumer demand.
Our tools are designed to integrate with insurance providers internal workflows to minimize administrative burden and incorporate quote, bind and lifetime value feedback, enabling providers to evaluate and optimize their acquisition and retention campaigns through a single interface. We support the industry-standard web-based marketing, customer relationship management and referral management systems commonly used by insurance providers, allowing easy adoption of our platform.
Key benefits for consumers
We offer consumers a streamlined and personalized insurance buying experience, providing the following key benefits.
Saving time and money
We provide consumers with multiple relevant insurance product options based upon the information submitted by them at quote request, enabling them to save both time and money. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.
Single starting point for a comprehensive insurance shopping experience
Our marketplace provides a single starting point to access a range of relevant insurance options beyond what consumers might otherwise find on their own. We believe we operate the largest directly connected network of insurance providers, with more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. The depth and breadth of our insurance provider network allows us to present a comprehensive set of options to consumers.
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Results-driven insurance shopping destination efficiently matching consumers with relevant options
Our platform empowers consumers to make better and more informed insurance decisions. Our proprietary algorithms are designed to maximize consumer bind rate, which our research shows also maximizes consumer satisfaction. We match and connect consumers, based on consumer attributes and a number of other factors, with relevant options from the broad range of insurance providers on our platform.
Seamless online or offline handoff to quote or bind a policy
Our seamless consumer handoff integrations minimize additional information required to provide a quote or bind a policy either online or offline. This reduces consumer shopping time, improves the consumer experience and increases the likelihood of completing a purchase.
Key benefits for insurance providers
We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback. We offer insurance providers the following key benefits:
Access to a high volume of in-market online consumers
We attract consumers seeking insurance to our websites from hundreds of online sources. We further validate purchase intent by requiring consumers to submit approximately 20 to 50 items of data in order to submit a quote request. From 2014 to 2017, our annual quote requests grew from 2 million to 12 million. As a result, we are able to refer a high volume of insurance shoppers to our customers.
Acquisition of consumers that match providers specific criteria
We offer insurance providers fine-grained controls to select specific consumer profiles relevant to their underwriting practices and preferences, enabling them to target rational cost-per-sale relative to long-term value for each referral.
High return on investment through efficient acquisition of desired consumers
As a result of the purchase intent of consumers in our marketplace and the efficiency of our matching algorithms, our referrals are more likely to result in bound policies compared to referrals obtained through other marketing channels. We estimate our quote and bind rates to be up to double the industry average for advertising channels of comparable scale. In addition, the transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance providers to evaluate the performance of their marketing spend on our platform and manage their own return on investment.
High bind rates for referrals through broad data integration with providers
Our seamless consumer handoff technology integrates with insurance providers to reduce the number of steps required from referral to bind, increasing transparency and consumer satisfaction. We securely provide quote request data, allowing insurance providers to adjust their quoting workflows in ways that are compatible with their existing infrastructure and business requirements. This data handoff provides carriers and agents with the core information needed to bind a policy in a maximum of two steps after quote request.
Flexible advertising channel
Our marketplace allows providers to rapidly align cost-per-acquisition and distribution of advertising dollars with preferred consumer profiles. With granular budgeting and bidding tools, providers have extensive, near real-time control over the distribution and utilization of their advertising spend on our platform.
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Our Strengths
We believe that our competitive advantages are based on the following key strengths:
Results-driven marketplace for consumers
We efficiently match and connect consumers with relevant insurance policy options for their specific circumstances and needs, decreasing the time needed to compare providers and increasing the chance of purchasing insurance. Consumers receive comprehensive, robust and inclusive information, enabling them to select the right insurance policy for their needs from our broad direct network of insurance providers. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. We believe that offering a personalized, comprehensive and provider-inclusive consumer experience has helped us to become the leading marketplace for online insurance shopping, as measured by online visits.
Disruptive data-driven approach
Our marketplace is powered by a proprietary data and technology platform that efficiently attracts insurance shoppers from a diverse and growing array of online sources, increases the bind rate for consumers and drives down the cost of acquisition for providers. As of April 30, 2018, we employed over 130 data scientists, analysts and engineers who continually leverage our growing data assets to improve our capabilities. Our data assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018. We leverage our data assets to further improve the conversion rate of our referrals and our matching efficiency, and to innovate new products for consumers and providers through rapid, test-driven development.
Powerful network effects
Our insurance marketplace benefits from significant network effects. As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs, leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.
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Through these characteristics of our platform, we increased the volume of quote requests referred to our insurance provider customers over the past four years, as illustrated in the chart below, while decreasing our cost per quote request by 65% over the same period.
Ability to expand with significant operating leverage
We have leveraged our data assets, technology platform and engineering and data science capabilities, along with our growing audience of consumers and network of insurance providers, to expand our platform from the auto insurance market into the home and life insurance markets. We have entered these new verticals with only a modest increase in headcount, and we have already achieved attractive economics and high growth.
Our cost structure provides us with the flexibility to react to changes in the business cycle. Our largest expense, advertising, is variable and can be quickly adjusted to market conditions. During economic downturns, advertising expenses can be rapidly reduced. Conversely, during periods of economic expansion we can increase advertising spend to attract consumers to our platform and further enhance the strength of our marketplace.
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Founder-led management team with culture of innovation and track record of capital efficiency
Our co-founders are Seth Birnbaum, Chief Executive Officer, and Tomas Revesz, Chief Technology Officer. Seth, a co-founder and chief executive officer of Digital Guardian, Inc., brings to EverQuote a broad range of management and start-up experience, complemented with engineering skills and information technology expertise. Tomas, a co-founder and an executive vice president of Digital Guardian, Inc., brings to EverQuote extensive knowledge in IT systems development and management. Since our inception, we have built a team focused on data-driven innovation, which remains at the heart of our culture.
In addition, our management team has a track record of being good stewards of capital. We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business.
Our Growth Strategies
Our core mission is to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We leverage technology and data to empower consumers with better information and options, enabling them to identify and reduce risky behaviors, lower their insurance costs and lead safer lives. Ultimately, we seek to improve the way consumers understand and manage their personal risks.
Data-driven innovation remains at the heart of our strategy, culture and operating focus. With our diverse team of analysts, engineers and business development employees, as well as our partnerships with leading insurance providers, we are working to build the largest and most trusted online insurance marketplace in the world. To achieve this goal, we intend to continue to grow our business by pursuing the following strategies:
Attract more consumers to our marketplace
We plan to expand the number of consumers reaching our marketplace through existing channels by leveraging the superior features and growing data assets of our platform. In addition, we plan to launch new marketing channels, such as online video. In 2017, we had, on average, over 300,000 daily visits to our websites, resulting in more than 30,000 daily quote requests. We believe that there is an opportunity to attract substantially more traffic to our current marketplace and that there are further expansion opportunities in adjacent verticals.
Add more insurance providers and increase revenue per provider
We plan to grow the number of insurance providers on our platform by demonstrating the value proposition of our marketplace as an efficient, scalable customer acquisition channel and adding new provider-facing features. We believe we can also increase the number of referrals per quote request while maintaining or increasing the bind rate per quote request, which would allow us to increase our revenue at limited marginal cost. We also plan to expand revenue per provider by increasing consumer traffic and quote request volume, adding verticals and innovating advertiser products and services.
Despite the high costs, saturation and lower overall conversion rates associated with traditional advertising channels, such as television, radio and billboards, insurance carriers still allocate a significant portion of their advertising budgets towards these channels. We have achieved over $125 million in annual revenue while capturing only a small fraction of insurance marketing spend in aggregate and at an individual provider level.
Expand and deepen consumer engagement
We continuously leverage our data assets and growing consumer volume to conduct test-driven product development. We plan to innovate with new consumer offerings and enhanced personalization to deepen consumer engagement. Our goal is to provide broader and more meaningful consumer experiences, leading to
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increased return visits, higher frequency of interaction and greater revenue per user. For example, in 2016, we launched EverDrive, a free social safe-driving mobile app that enables users to improve their driving behavior along various dimensions. EverDrive has achieved rapid growth with over 500,000 unique user downloads since launch and over 100,000 active drivers per month.
Invest in our technology platform and people
Historically, we have increased the size of our engineering and data science team every year, enabling us to increase our consumer traffic and conduct more A/B testing, improve conversion rates in our marketplace and lower cost per quote request. We plan to continue to invest in our data and technology platform by growing our data science and engineering team, enabling us to improve the breadth and efficiency of our marketplace for consumers and providers. In the future, we may also expand our capabilities and team through selective acquisitions.
Launch new verticals on our platform
We plan to introduce new offerings in order to become a leading end-to-end provider for consumers seeking personal risk management solutions. We have demonstrated the ability to efficiently expand into new markets by leveraging our data, technology, partner relationships, consumer audience and talent. In 2016, we entered into the home and life insurance market, and from 2016 to 2017, we saw a more than three-fold increase in the number of quote requests for home insurance and two-fold increase in the number of quote requests for life insurance, with only a modest increase in headcount. As the shift towards digital continues to accelerate in the personal risk marketplace, we believe we are well positioned to expand into new verticals such as renters and commercial insurance.
Enhance our brand awareness
We believe we have significant opportunities to increase our brand awareness. Historically, our marketing efforts have been focused on algorithmic consumer acquisition rather than brand marketing. We plan to further expand our marketing channels to drive greater brand recognition and attract a broader consumer audience. We believe a stronger brand may drive even greater efficiencies in our marketplace.
Grow internationally
While today we operate solely in the United States, we believe there are significant opportunities for us to expand into other countries. We plan to selectively launch our offerings in international markets over time. We expect to focus our efforts in international markets with dynamics similar to the United States. We believe we can expand into new geographies with limited additional development costs due to the operating leverage embedded in our business.
Proprietary Data Assets and Algorithms
Our data assets
We leverage our data assets throughout our business to enhance our competitive position. Our data assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018.
Our data assets are comprised of:
| granular bid and impression-level performance data across a diverse landscape of advertising channels and platforms; |
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| consumer-provided geographic, demographic, preference and behavioral data obtained through our websites and mobile applications; |
| consumer insights derived from third-party tools, including phone number and address validations and IP address geolocation; and |
| insurance carrier and agent bid, quote, bind and lifetime value feedback. |
We use our data assets to:
| inform decision-making throughout our business; |
| optimize and scale our algorithmic advertising and consumer acquisition efforts; |
| conduct continuous A/B testing-driven to develop our consumer experiences and insurance provider tools and services; and |
| make decisions regarding our companys strategic direction, including entry into new markets and verticals. |
We invest in making these assets accessible to our data scientists through a centralized warehouse, custom reporting and business intelligence tools and application programming interfaces.
Our algorithms
Our business model leverages proprietary algorithms across our marketplace, including in our advertising campaigns and consumer acquisition efforts, and for optimizing consumer-provider alignment. As our data assets grow, our algorithms become more powerful.
Multi-channel bid automation algorithms
Our data assets power our purpose-built, multi-channel bid automation and machine learning models. These tools enable granular decision-making by our consumer acquisition teams across complex, large-scale advertising campaigns.
Consumer alignment algorithms
Our consumer alignment algorithms implement a multi-step process for matching consumers with the insurance providers most likely to provide the right coverage at a competitive price. These algorithms factor in consumer input data, insurance provider bid preferences and economics, as well as quote, bind and lifetime value feedback. These algorithms are designed to optimize for the likelihood of a policy sale, maximize consumer satisfaction and insurance provider return on investment. We believe that the accuracy of the matches provided by our consumer alignment algorithms will improve over time as we accumulate additional data across the insurance landscape and expand provider coverage in our marketplace.
Products and Services
Consumer products
EverQuote.com
We evolve our mobile and desktop consumer websites through continuous, iterative testing and optimization. Every change is tested and evaluated against our goal to make insurance shopping easier while saving consumers time and money. Through this rigorous process, we introduce new features to enhance ease-of-use and improve messaging, clarity and personalization.
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Capabilities such as pre-fill and partial quote retrieval help reduce consumer burden and ultimately enable higher conversion rates and data quality for our insurance provider customers. By integrating our platform with providers online workflows, we extend this ease of use throughout the shopping experience; providers receive all or nearly all the data required to quote a consumer, allowing them to shorten or eliminate steps in their workflows. As the level of integration increases, we believe consumer satisfaction in our marketplace will continue to improve.
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Immediately upon submitting a quote request, we match the consumer with insurance providers and present personalized listings determined by our consumer alignment algorithms. These listings provide access to quotes through a variety of referral formats, both online and offline. This approach helps unify the fragmented insurance landscape for the consumer and provides a single entry point to request and compare quotes.
As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests and, we estimate, more than 4.2 million policies.
Products and services for insurance providers
We provide insurance carriers and agents with industry-leading products and services to grow their businesses. Our ability to deliver a large volume of high-intent consumer referrals that are aligned with providers desired consumer attributes makes us an effective channel for providers to grow efficiently. We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback. Our products and services include:
EverQuote Pro for carriers
Carriers access our marketplace through EverQuote Pro for carriers, a web interface that enables them to manage campaigns efficiently at scale. EverQuote Pro allows for granular targeting of consumers based on insurance-related attributes including geography, demographics, behavioral characteristics and coverage needs. These tools enable carriers to acquire their ideal customers efficiently and at scale, delivering better return on investment than traditional channels.
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EverQuote Pro for agents
Agents access our marketplace through EverQuote Pro for agents, a web interface that enables them to specify their desired consumer profiles, geographic areas, hours of operation, budgets and product types across auto, home and life insurance through a single interface. This self-service platform allows agents to access our marketplace with minimal effort.
Intuitive tools simplify campaign management for agents.
SmartCampaigns
Our SmartCampaigns offering provides automated bidding strategies for participating insurance providers. SmartCampaigns optimizes spend to maximize quote and bind volume while meeting providers return-on-
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investment targets. Participating providers integrate with SmartCampaigns by providing real-time performance feedback, including quote, bind and policy-value information for every referral, allowing our proprietary algorithms to continuously align and adjust providers bids and budgets across consumer segments. SmartCampaigns enables providers to acquire a higher volume of policies at better return on investment than they might be able to achieve operating independently in our marketplace.
Seamless consumer handoff
Carriers require a rich set of consumer attributes in order to render an accurate quote. Providing this information multiple times in order to compare quotes is a cumbersome process for consumers, and can lead to lower conversion rates and lost sales for providers. As a result of our scale and history as a trusted partner, we integrate directly into many providers online workflows, customer relationship management systems and internal quoting platforms. These integrations minimize the steps between a quote request in our marketplace and the delivery of accurate, bindable quotes across online and offline channels.
We have observed that increasing the depth of integration results in higher conversion rates, enhancing the value of our consumer referrals. Basic integrations, called prefill, allow carriers to populate their workflows with data from our platform, such that consumers are required only to confirm the data they have already provided. Full click-to-quote integration removes all intermediate steps, allowing the consumer to receive a quote immediately upon arrival on the provider website. In tests with carriers, conversion rates for our referrals increased by 11% to as much as 41% depending on the depth of integration.
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Insurance Agency Academy
Our Insurance Agency Academy delivers free content and services to further our vision of being the industry-leading resource for agencies to grow their businesses. This includes a wide range of educational materials, including e-books, webinars, training sessions and live events.
EverDrive
EverDrive, our free social safe-driving mobile app, provides users with comprehensive information about their driving behavior along various dimensions, such as harsh braking, speeding and distracted phone use. Through self-measurement and competition with friends, family and community leaderboards, EverDrive users may ultimately decrease risky driving behaviors and reduce provider losses.
In addition, EverDrive addresses key challenges currently limiting the pace of adoption of telematics-based insurance products. For consumers, EverDrive provides control over when and with whom their driving data is shared, unlike carrier telematics programs. For carriers, it provides access to an audience of pre-qualified drivers and driving data, removing the administrative burden created by the multi-week onboarding and assessment periods required for direct offerings.
We believe the fast-growing scale of the EverDrive community, with more than 500,000 unique user downloads since launch and over 100,000 active drivers per month, positions us to play a strong role in the growth of new usage-based insurance products.
Technology and Infrastructure
Our technology platform combines internally developed, third-party and open source software. This combination allows for rapid development and release of high-performance technology solutions in a cost-effective and scalable manner.
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Our websites, mobile applications and supporting services, as well as our development and test environments, are hosted across industry-standard cloud providers such as Amazon Web Services and Google Cloud Platform. Additional internal data and analysis tools are hosted at a third-party data center in Boston, Massachusetts. We use content delivery network solutions for fast, local access to our products. We use network, website, service and hardware-level monitoring, coupled with remote-content monitoring, to maintain a high level of uptime and availability for our systems with high-performance delivery.
Marketing
Our marketing efforts are designed to increase engagement by both consumers and insurance providers and enhance their awareness of our company. Our marketing spend across channels is fundamentally algorithmic and performance-based. Over time, we believe we will increase our brand equity and recognition as we serve more ad impressions.
Consumer marketing
Our marketplace relies on consumer acquisition from our online marketing efforts. Our consumer marketing strategies are algorithmic and performance-based, leveraging our team of data scientists, analysts and engineers, along with our data assets and technology.
We have built technology to automate our algorithmic traffic acquisition across multiple online advertising platforms. As of April 30, 2018, our technology serves, on average, over 175 million advertising impressions per day across hundreds of acquisition sources in a diversified strategy including search, display, social, email and video, with no single source accounting for more than 21% of quote requests.
We believe the combination of our talent, data and technology provides us with competitive advantages in acquiring more consumers as we continue to scale our business.
Agent marketing
Our agent marketing initiatives are designed to reach, educate and acquire insurance agents not yet participating in our marketplace. Our agent marketing focuses on:
| Digital marketplace trends: We educate agents on how consumer buying behavior is changing and increasingly moving online and how they can better acquire and serve consumers in the digital world. |
| Educating agents on how to leverage the EverQuote platform: We educate agents on marketplace participation, providing best practices, case studies and strategies for account growth and optimization. |
We reach new agents online through email, search, social media, display and content marketing; according to Google Analytics, our agency resource pages received 27,000 visits per month between June 2017 and December 2017. In addition, we reach agents in person at tradeshows and conferences on a weekly basis. For our current agent customers, we communicate the value of our platform and educate them on its use through our onboarding process, ongoing outreach and account performance reports.
Carrier marketing
Our carrier marketing initiatives are designed to reach and educate insurance carrier marketing professionals and executives. We deliver high-value content on how carriers can increase efficiency in their customer acquisition efforts by capitalizing on the increasing targetability and personalization enabled by our marketplace. We focus on building deep relationships and establishing thought leadership among carriers through our presence at industry tradeshows, targeted delivery of whitepapers and other materials, and personal outreach to key decision makers and marketing teams.
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Sales
We have built an efficient, consultative 60-person sales and customer success organization, which sells our marketplace referrals and services to insurance providers. Our sales organization consists of two major components: our carrier team, which focuses on the more than 1,500 carriers operating in non-health insurance markets in the United States, and our agency team, which focuses on enrolling the approximately 100,000 insurance agencies who operate in the auto, home and life insurance markets.
| Carrier sales and campaign management : Our carrier team is responsible for bringing carriers into our marketplace. This team takes a data-driven approach to helping insurance carriers bind more policies with their target consumers at lower cost per sale than other channels. Our campaign management team develops a deep understanding of our carrier customers objectives to optimize their campaign performance and grow their budgets in our marketplace. |
| Agency sales and customer success : Our agency team is responsible for bringing new agents into our marketplace, growing existing agent accounts and driving agent satisfaction and retention. Our agency sales team focuses on onboarding new agents and selling new products, such as home and life insurance referrals, to existing accounts. Our customer success team analyzes account performance and consults with agents to optimize their participation in our marketplace, help them achieve their growth and return-on-investment objectives, expand volume and add products. |
Our Customers
Our insurance provider customers include:
| Carriers: Insurance carriers write auto, home and/or life insurance policies for consumers either directly and/or through agents. The 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups participated in our marketplace as of April 30, 2018. We plan to continue to grow both the number of carriers participating in our marketplace and the level of participation from each carrier. |
| Agents: Insurance agents deliver auto, home and/or life insurance to consumers on behalf of one or more carriers. As of April 30, 2018, we had over 7,000 enrolled insurance agencies on the EverQuote Pro platform. We are focused on further penetrating the large base of approximately 100,000 insurance agencies in the United States. |
| Financial advisors: With the launch of our life insurance offerings, we have expanded our target customers to include financial advisers, of which there were more than 300,000 operating in the United States in 2017 according to Cerulli Associates. We expect this channel to serve as an important avenue of growth if we decide to expand into other financial products. |
| Indirect distributors and aggregators: Indirect distributors, such as aggregators and media buyers, purchase consumer referrals and resell them to insurance providers. Indirect distributors typically provide lower revenue and less data feedback per referral. |
A key element of our marketplace strategy has been to build a direct network of insurance provider customers. We increased the percentage of our total revenue derived from direct distribution from 8% to 85% for the years ended December 31, 2012 and 2017, respectively. The benefits of this shift include higher pricing per referral, improved pricing stability, greater revenue predictability, richer data feedback, better performance and stronger relationships with providers and consumers.
Competition
We face competition to attract consumers to our websites and mobile applications, as well as for insurance provider advertising and marketing spend.
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Competition for consumers
The competition for consumer traffic and advertising space online is broad and diverse. Our competitors offer various marketplaces, products and services that compete with us. Some of these competitors include:
| internet search engines and social media platforms; |
| brand advertisers and brand agencies across a spectrum of industries; |
| sites operated by individual insurance providers; |
| finance and credit savings sites, such as LendingTree; |
| insurance lead-generation, affiliate and aggregator networks; and |
| marketing services providers for insurers and general marketing services providers. |
We believe we compete favorably in attracting insurance shoppers due to our superior data assets, consumer acquisition technology, team and data sciences management infrastructure. We believe we also compete favorably in converting consumer traffic into referrals and, ultimately, purchased policies due to the depth of our provider network, our consumer matching algorithms and our intuitive and streamlined consumer interface. Furthermore, we believe the breadth of the insurance provider options in our marketplace gives us an inherent advantage over single-brand insurance providers with respect to conversion and bind rates for consumers.
Competition for insurance provider advertising and marketing spend
We compete for insurance providers advertising and marketing spend with other internet sites, performance marketers and online marketing service providers. We also compete with offline media, such as television, radio and direct mail. We believe we compete favorably on the basis of the scale and quality of our consumer referrals, our seamless handoff capability, our ability to align consumers with our providers preferences and business strategies and the targeting capabilities of our platform.
Culture and Employees
Our company culture is data-driven, entrepreneurial, diverse, innovative and capital efficient. We are focused on delivering superb results for our consumers, insurance providers and partners. As of April 30, 2018, we had more than 230 employees, the majority of which are based in Cambridge, Massachusetts, with more than 130 data scientists, analysts and engineers, along with more than 60 employees in sales, sales operations and customer support.
Data is at the core of our culture. Our data scientists have access to operational data and metrics about our business through our proprietary internal business data management system, known as Goat. Decisions we make as a company, from marketing and sales to product and engineering, are expected to be A/B tested and data-driven. We emphasize original thought and testing over opinion and reward the commitment, excellence and achievement of our collective team. We believe this has yielded an innovative approach that delivers results, efficiency and benefits for consumers and providers in our marketplace.
Regulation
Our business operates in a heavily regulated industry. Various aspects of our business are, may become, or may be viewed by regulators from time to time as subject, directly or indirectly, to U.S. federal, state and foreign laws and regulations. We are affected by laws and regulations that apply to businesses in general and the insurance industry, as well as to businesses operating on the internet and through mobile applications. This includes a continually expanding and evolving range of laws, regulations and standards that address financial services, information security, data protection, privacy and data collection, among other things. We are also
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subject to laws governing marketing and advertising activities conducted by telephone, email, mobile devices and the Internet, including the Telephone Consumer Protection Act, the Telemarketing Sales Rule, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 and similar state laws. In addition, we are a licensed insurance producer in most U.S. states. Insurance is highly regulated by the states in which we do business, and we are required to comply with and maintain various licenses and approvals.
Because the laws and regulations governing insurance, financial services, privacy, data security and marketing are constantly evolving and striving to keep pace with innovations in technology and media, it is possible that we may need to materially alter the way we conduct some parts of our business activities or be prohibited from conducting such activities altogether at some point in the future.
Intellectual Property
We seek to protect our intellectual property through a combination of patent protection, copyrights, trademarks, service marks, domain names, trade secret laws, confidentiality procedures and contractual restrictions.
As of April 30, 2018, we had two pending U.S. patent applications, including one provisional patent application. We intend to pursue additional patent protection to the extent we believe it would be beneficial to our competitive position.
We have a number of registered and unregistered trademarks. We own federal registrations for trademarks including EVERQUOTE and EVERDRIVE, as well as multiple pending applications. We will pursue additional trademark registrations to the extent we believe doing so would be beneficial to our competitive position.
We are the registered holder of a variety of domestic and international domain names that include EverQuote and similar variations.
In addition to relying on the protection provided by these intellectual property rights, we enter into confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners. Our employees and contractors are also subject to invention assignment agreements. We further control the use of our proprietary technology and intellectual property through provisions in both our general and specific terms of use on our website.
Facilities
Our principal executive offices are located in Cambridge, Massachusetts, where we lease approximately 25,000 square feet of space pursuant to a lease that expires in September 2024, of which we have sublet 7,735 square feet until June 2018. Upon the expiration of this sublease, we intend to occupy the space.
Additional executive and administrative offices and our call center are located in Woburn, Massachusetts, where we lease approximately 6,000 square feet of space pursuant to a lease that expires January 2022.
We believe that our current facilities are adequate to meet our immediate needs.
Legal Proceedings
We are not currently a party to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material adverse effect on us because of defense and settlement costs, diversion of management resources, and other factors.
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Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors as of May 1, 2018:
Name |
Age |
Position |
||||
Seth Birnbaum |
44 | President, Chief Executive Officer and Director | ||||
Tomas Revesz |
44 | Chief Technology Officer | ||||
John Wagner |
44 | Chief Financial Officer and Treasurer | ||||
Jayme Mendal |
32 | Chief Revenue Officer | ||||
David Mason |
42 | General Counsel and Secretary | ||||
Eugene Suzuki |
43 | Chief Information Officer | ||||
Darryl Auguste |
30 | Senior Vice President, Analytics and Online Marketing | ||||
Shimrit Markette |
34 | Senior Vice President, People Operations | ||||
David Blundin |
51 | Chairman of the Board of Directors | ||||
Sanju Bansal |
52 | Director | ||||
John Lunny |
52 | Director | ||||
George Neble |
61 | Director | ||||
John Shields |
65 | Director | ||||
Mira Wilczek |
36 | Director |
Seth Birnbaum, one of our co-founders, has served as our president, chief executive officer and a member of our board of directors since September 2010. Previously, Mr. Birnbaum co-founded Digital Guardian, Inc., a data security company, in 2003, where he served as a member of the board of directors and as chief executive officer until October 2010. In 1996, he co-founded NeoGenesis Pharmaceuticals, Inc., where he served as vice president of systems engineering until 2003. Mr. Birnbaum holds an S.B. degree in mechanical engineering from the Massachusetts Institute of Technology. We believe that Mr. Birnbaum is qualified to serve on our board of directors due to his experience in leading emerging technology companies, his extensive knowledge of our company and the industry in which we compete, and his vision and leadership as a co-founder and as our president and chief executive officer.
Tomas Revesz , one of our co-founders, has served as our chief technology officer since September 2010. Previously, Mr. Revesz co-founded Digital Guardian, Inc., a data security company, in 2003, where he served as executive vice president of global services until September 2010. Prior to that, he served as vice president of information systems at NeoGenesis Pharmaceuticals, Inc. from 1998 to 2003. Mr. Revesz studied electrical engineering and management science at the Massachusetts Institute of Technology.
John Wagner has served as our chief financial officer and treasurer since April 2014. Previously, Mr. Wagner served as chief financial officer of NuoDB, Inc., a database company, from 2012 to 2014. Prior to that, Mr. Wagner served as the vice president of finance at Carbonite, Inc., an online backup company, from 2011 to 2012, as corporate controller at Constant Contact, Inc. an email marketing company, from 2006 to 2011 and as vice president of finance and chief financial officer at Salesnet, Inc., a sales software company, from 2003 to 2006. Mr. Wagner holds a B.B.A. degree in accounting from the University of Massachusetts, Amherst and an M.B.A. degree from Boston University. He is also a licensed Certified Public Accountant in Massachusetts.
Jayme Mendal has served as our chief revenue officer since September 2017. Mr. Mendal previously served as the vice president of sales and marketing at PowerAdvocate, Inc., an energy intelligence company, from May 2017 to September 2017. Prior to that, Mr. Mendal served in multiple positions at PowerAdvocate, Inc., including manager of corporate strategy from August 2013 to August 2014, director of corporate strategy and marketing from August 2014 to December 2015 and senior director of sales and marketing from June 2015 to May 2017. From August 2007 to July 2010, he was a management consultant within the growth strategy division
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of Monitor Deloitte (formerly Monitor Group). Mr. Mendal holds a B.S. degree in finance and economics from Washington University in St. Louis and an M.B.A. degree from Harvard Business School.
David Mason has served as our general counsel and secretary since February 2014. Previously, Mr. Mason served as deputy general counsel at KAYAK Software Corporation, a leading travel metasearch site, from October 2011 to January 2014. From October 2006 to October 2011, he was an associate in the mergers, acquisitions and securities group at Bingham McCutchen, LLP (now Morgan, Lewis & Bockius LLP). Mr. Mason has also served as an adjunct professor at Boston College Law School since 2006. He holds a B.B.A. degree from the University of Massachusetts, Amherst and a J.D. degree from Boston College Law School.
Eugene Suzuki has served as our chief information officer since November 2015 and previously served as our vice president of technology operations beginning in January 2012. Previously, Mr. Suzuki was the vice president of technology solutions at Digital Guardian, Inc. from 2005 to 2011. Mr. Suzuki holds a B.S. degree in Electrical and Computer Engineering from the Worcester Polytechnic Institute. Mr. Suzuki is also a Certified Information Systems Security Professional.
Darryl Auguste has served as our senior vice president of analytics and online marketing since December 2014 and previously served as our vice president, consumer analytics beginning in February 2013. From 2011 to 2012, Mr. Auguste worked at Cogo Labs, Inc., a startup incubator, ultimately serving as director of analytics, email marketing. Mr. Auguste holds a B.A. degree in economics and mathematics from Yale University.
Shimrit Markette has served as our senior vice president of people operations since March 2018. She served as vice president of talent acquisition and development and vice president of people operations from July 2015 to November 2017 and director of talent acquisition from January 2014 to June 2015. Prior to joining EverQuote, Ms. Markette was the assistant director of career services at Tufts University from July 2011 to January 2014. Ms. Markette holds a B.A. degree in history from Middlebury College and a master of education from the Harvard University Graduate School of Education.
David Blundin , one of our co-founders, has served as chairman of our board of directors since August 2008. Mr. Blundin is the founder of Link Ventures, where he has served as managing partner since January 2006. He is also the co-founder of Vestigo Ventures LLC, a venture capital firm, where he has served as managing partner since January 2016. Previously, Mr. Blundin was the chairman of Autotegrity, Inc., a data analytics and online marketing company that he co-founded, from 2008 until its sale to ADP in 2011, and chief technologist at Vignette Corporation, a content management and delivery company, from 2000 to 2002. Prior to Vignette, he co-founded DataSage, Inc., a software company, and served as its chief executive officer and chairman from 1996 to 2000. Mr. Blundin holds an S.B. degree in computer science from the Massachusetts Institute of Technology. We believe that Mr. Blundin is qualified to serve on our board of directors because of his extensive experience as a director of technology companies and deep knowledge of our company.
Sanju Bansal has served as a member of our board of directors since May 2014. Mr. Bansal has served as chief executive officer of Hunch Analytics, LLC, a data analytics company that he founded, since November 2013. Previously, Mr. Bansal served in various executive leadership positions and as a director of MicroStrategy Incorporated, a worldwide provider of business intelligence software, including as executive vice president from 1993 to 2013 and chief operating officer from 1993 to 2012. Mr. Bansal also served as a member of MicroStrategys board of directors from 1993 to 2013, including as vice chairman from November 2000 to November 2013. Mr. Bansal has served as a director of CSRA Inc., an information technology services company specializing in national security, since November 2015. Mr. Bansal served as a director of The Advisory Board Company from 2009 until the companys sale in November 2017. Mr. Bansal holds an S.B. degree in electrical engineering from the Massachusetts Institute of Technology and an M.S. degree in computer science from The Johns Hopkins University. We believe that Mr. Bansal is qualified to serve on our board of directors because of his deep background in consulting and information and systems technology, his leadership experience as a senior
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executive of a public company, his corporate governance experience from serving as a member of public company boards of directors, and his extensive knowledge of relevant technologies.
John Lunny has served as a member of our board of directors since June 2014. Mr. Lunny co-founded Vestmark, Inc., a wealth-management SaaS technology company, and has served as its chief executive officer since 2008 and served as its president and chief operating officer from 2003 to 2008. Prior to co-founding Vestmark, Mr. Lunny co-founded DataSage, Inc., an enterprise data analytics software company, and served as its vice president of engineering from 1996 to 2001 leading to its acquisition by Vignette Corporation. Following the acquisition, Mr. Lunny served as senior director of engineering at Vignette Corporation from 2001 to 2003. Mr. Lunny holds an S.B. degree in electrical engineering and an S.B. degree in computer science from the Massachusetts Institute of Technology. We believe that Mr. Lunny is qualified to serve on our board of directors because of his experience as an executive in the technology industry.
George Neble has served as a member of our board of directors since May 2018. Since July 2017, Mr. Neble has served as a business consultant. From 2012 to June 2017, Mr. Neble served as managing partner of the Boston office of Ernst & Young LLP, an accounting firm. Prior to that, Mr. Neble was a senior assurance partner at Ernst & Young from 2002 to 2012. Mr. Neble is a certified public accountant. He holds a B.S. degree in accounting from Boston College. We believe that Mr. Neble is qualified to serve on our board of directors because of his financial expertise and his experience in public accounting.
John Shields has served as a member of our board of directors since May 2018. Since October 2016, Mr. Shields has served as managing director, head of risk and regulatory compliance at CFGI, LLC, a financial consulting firm. He has served as the president of Advisor Guidance, Inc., a business consulting firm, since 2010. Mr. Shields has served as a trustee of Domini Investment Trust, a registered investment company, since 2004 and as a consultant in the financial services industry since 2002. From January 2014 to October 2016, he served as director, head of investment management consulting at Navigant Consulting, Inc. From 1998 to 2002, he served as chief executive officer of Citizens Advisers, Inc., an investment management company. Mr. Shields is a certified public accountant. He holds a B.S. degree in accounting from Saint Peters University. We believe that Mr. Shields is qualified to serve on our board of directors because of his financial and accounting expertise.
Mira Wilczek has served as a member of our board of directors since February 2017. Ms. Wilczek has been a senior partner at Link Ventures, a venture capital firm, since June 2015. She has served as president and chief executive officer of Cogo Labs, Inc., a startup incubator, since October 2016 and was entrepreneur in residence at Cogo Labs from December 2013 until February 2017. Prior to joining Link, Mira founded Red Panda Security, a research consultancy specializing in mobile behavioral analytics, and served as its chief executive officer from 2012 to 2013. From 2009 to 2012, she served as director of business development at Lyric Semiconductor, a fabless semiconductor company. Ms. Wilczek holds an S.B. degree in electrical engineering and computer science and an M.B.A. degree from the Massachusetts Institute of Technology. We believe that Ms. Wilczek is qualified to serve on our board of directors because of her investment and operations experience in the technology industry.
There are no family relationships among any of our directors or executive officers.
Composition of the Board of Directors
Our board of directors currently consists of seven members. The current members of our board of directors were elected pursuant to a voting agreement among certain of our preferred and common stockholders. Upon the closing of this offering, such voting agreement will terminate and the terms of a new voting agreement will govern. Under the new voting agreement, which we refer to as the Link voting agreement, each of Seth Birnbaum, Tomas Revesz, John Wagner, Jayme Mendal, David Mason and Darryl Auguste, along with certain other stockholders, agree to vote on all matters presented to our stockholders all voting capital stock held by him in the manner directed by Link Ventures, LLLP. Upon the closing of this offering, the Link voting agreement will be the only agreement
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containing contractual obligations regarding the election of our directors. The Link voting agreement will continue in full force and effect until terminated by written consent of Link Ventures, LLLP in its sole discretion.
Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal. In accordance with the terms of our restated certificate of incorporation and amended and restated bylaws, each of which will become effective upon the closing of this offering, the authorized number of directors may be changed only by our board of directors. Upon the closing of this offering until such date on which the votes applicable to the Class A common stock and Class B common stock controlled by Link Ventures represent less than a majority of the aggregate votes applicable to all shares of the outstanding Class A common stock and Class B common stock, which date we refer to as the threshold date, our directors may be removed by the affirmative vote of the holders of a majority of the voting power of all shares that stockholders would be entitled to vote for the election of directors. From and after the threshold date, our directors may be removed by stockholders only for cause by the affirmative vote of the holders of shares representing a majority of the voting power of all shares that stockholders would be entitled to vote for the election of directors. Upon the closing of this offering until the threshold date, any vacancies in the board of directors may be filled by the affirmative vote of the holders of a majority of the voting power of all shares that stockholders would be entitled to vote in for the election of directors. From and after the threshold date, any vacancies in the board of directors may be filled only by our board of directors.
Director Independence
Under the rules of the New York Stock Exchange, independent directors must comprise a majority of a listed companys board of directors within a specified period of the completion of its initial public offering. In addition, the rules of the New York Stock Exchange require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and corporate governance committees be independent. Under the rules of the New York Stock Exchange, a director will only qualify as independent if, in the opinion of that companys board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that such person is independent as defined under New York Stock Exchange and SEC rules.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries or (2) be an affiliated person of the listed company or any of its subsidiaries.
Following this offering, we will qualify as a controlled company as that term is set forth in the New York Stock Exchange listing rules. Under the New York Stock Exchange listing rules, as a controlled company, we will be exempt from certain corporate governance requirements, including: (1) the requirement that a majority of our board of directors consist of independent directors, (2) the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities and (3) the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities. We intend to initially avail ourselves of certain of these exemptions and, for so long as we qualify as a controlled company, we will maintain the option to utilize from time to time some or all of these exemptions. For example, upon the closing of this offering, only members of our board of directors have been determined to be independent, and we will not have a compensation committee or a nominating and corporate governance committee. Even as a controlled company, we must comply with the rules applicable to audit committees set forth in the New York Stock Exchange listing rules. The phase-in periods with respect to director independence under the New York Stock Exchange Listing Rules allow us to have only one independent member on the audit committee upon the listing date of our Class A common stock, a majority of independent members on our audit committee within 90 days of the listing date and a fully independent committee within one year of the listing date.
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In addition, to the extent we elect not to rely on applicable exemptions from corporate governance requirements available to us as a controlled company, we also intend to rely on the phase-in provisions of the New York Stock Exchange rules with respect to the requirements that we have a majority of independent directors on our board of directors and compensation and nominating and corporate governance committees that are composed entirely of independent directors. Under these phase-in provisions, a majority of the members of our board of directors must be independent within one year of the date of this offering, and our compensation and nominating and corporate governance committees must each have one independent member at the time of this offering, a majority of independent members within 90 days of the date of this offering and all independent members within one year of the date of this offering.
In 2018, our board of directors undertook a review of the composition of our board of directors, the audit committee and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that each of and is independent as defined under the rules of the New York Stock Exchange. Our board of directors also determined that , and , who comprise our audit committee, satisfy the independence standards for the committee established by the Securities and Exchange Commission and the rules of the New York Stock Exchange, as applicable. In making such determinations, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director and any institutional stockholder with which he or she is affiliated.
Board Leadership Structure
Our corporate governance guidelines provide that the roles of chairman of the board and chief executive officer may be separated or combined. Our board of directors has considered its leadership structure and determined that at this time the roles of chairman of the board and chief executive officer should be separate. Separating the chairman and the chief executive officer positions allows our chief executive officer to focus on running the business, while allowing the chairman of our board of directors to lead the board in its fundamental role of providing advice to and oversight of management. Mr. Blundin has been an integral part of the leadership of our company and our board of directors since August 2008, and his strategic vision has guided our growth and performance. Our board of directors believes that Mr. Blundin is best situated to focus the board of directors attention and efforts on critical matters. Mr. Birnbaum has served as our president and chief executive officer and as a director since September 2010. Our board of directors believes that the boards leadership structure is appropriate because it strikes an effective balance between independent oversight and management participation in the board process.
Board Committees
Our board of directors has established an audit committee, which operates under a charter that has been approved by our board of directors. Following this offering, a copy of the audit committees charter will be posted on the corporate governance section of our website, www.everquote.com . Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.
Audit Committee
The audit committees responsibilities include:
| appointing, approving the compensation of, and assessing the independence of our registered public accounting firm; |
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| overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm; |
| reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures; |
| coordinating our board of directors oversight of our internal control over financial reporting, disclosure controls and procedures, and code of business conduct and ethics; |
| discussing our risk management policies; |
| establishing policies regarding hiring employees from the registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns; |
| meeting independently with our registered public accounting firm and management; |
| reviewing and approving or ratifying any related person transactions; and |
| preparing the audit committee report required by SEC rules. |
All audit services and all non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.
The members of our audit committee are , and . Our board of directors has determined that is an audit committee financial expert as defined by applicable SEC rules.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or a committee of our board of directors.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics, which will become effective upon the closing of this offering, that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following this offering, we will post a current copy of the code on our website, www.everquote.com . In addition, we intend to post on our website all disclosures that are required by law or New York Stock Exchange listing rules concerning any amendments to, or waivers from, any provision of the code.
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Summary Compensation Table
The following table sets forth the total compensation paid to our chief executive officer and each of our two other most highly compensated executive officers for the year ended December 31, 2017. We refer to these individuals as our named executive officers.
Name and Principal Position |
Year |
Salary
($) |
Bonus
($) |
Option
awards ($)(1) |
All other
compensation ($) |
Total
($) |
||||||||||||||||||
Seth Birnbaum |
2017 | 250,000 | | | 1,000 | (2) | 251,000 | |||||||||||||||||
President and Chief Executive Officer |
||||||||||||||||||||||||
Jayme Mendal |
2017 | 65,909 | 64,200 | (3) | 870,645 | 1,667 | (4) | 1,002,421 | ||||||||||||||||
Chief Revenue Officer |
||||||||||||||||||||||||
David Mason |
2017 | 295,833 | | | 4,500 | (4) | 300,333 | |||||||||||||||||
General Counsel and Secretary |
(1) | The amounts reported represent the aggregate grant-date fair value of the stock and option grants awarded to the named executive officer in the fiscal year ended December 31, 2017, calculated in accordance with FASB ASC Topic 718. Such grant-date fair values do not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant-date fair value of the sale of the equity awards reported in this column are set forth in Note 2 of our financial statements appearing at the end of this prospectus. The amounts reported in this column reflect the accounting cost for these equity awards and do not correspond to the actual economic value that may be received by the named executive officers in connection therewith. |
(2) | Consists of $1,000 paid to Mr. Birnbaum in connection with Mr. Birnbaums participation in EverQuote marketing materials. |
(3) | Consists of a $25,000 discretionary cash bonus granted with respect to 2017 performance and a $39,200 sign-on bonus paid to Mr. Mendal in connection with his hiring in 2017. |
(4) | Consists of matching 401(k) contributions. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding stock awards held as of December 31, 2017 by our named executive officers.
Name |
Grant Date |
Number of
securities underlying unexercised options (#) exercisable |
Number of
securities underlying unexercised options (#) unexercisable |
Option
exercise price ($) |
Option
expiration date |
Equity
incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) |
Equity
incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(1) |
|||||||||||||||||||||
Seth Birnbaum |
1/11/2016 | (2) | 3,916 | 26,112 | $ | 55.05 | 1/10/2026 | |||||||||||||||||||||
Jayme Mendal |
10/18/2017 | (3) | 33,360 | $ | 55.70 | 10/18/2027 | ||||||||||||||||||||||
David Mason |
4/2/2014 | (4) | 10,212 | 867 | $ | 12.85 | 4/1/2024 | |||||||||||||||||||||
1/11/2016 | (5) | 833 | 1,667 | $ | 55.05 | 1/10/2026 | ||||||||||||||||||||||
10/4/2016 | (6) | 12,000 |
(1) | Based on an assumed market price of $ (the midpoint of the price range set forth on the cover page of this prospectus). |
(2) | The shares of our Class B common stock subject to this option are scheduled to vest in equal monthly installments over six years commencing on the last day of the first full calendar month immediately following November 1, 2015, subject to continued service with us through each applicable vesting date. |
(3) |
One-fourth (1/4) of the shares of our Class B common stock subject to this option are scheduled to vest on September 30, 2018, and the balance is scheduled to vest in 36 equal monthly installments thereafter, |
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subject to continued service with us through each applicable vesting date. Upon a sale event, as defined in our 2008 Stock Incentive Plan, 50% of the then unvested shares shall immediately vest. If prior to September 4, 2018, we close a Series C financing or if there is a sale event, this stock option award shall instead vest in 48 equal monthly installments, with the first installment vesting on October 31, 2017. |
(4) | One-fourth (1/4) of the shares of our Class B common stock subject to this incentive stock option award vested on February 28, 2015, and the balance is scheduled to vest in 36 equal monthly installments thereafter, subject to continued service with us through each applicable vesting date. All shares subject to this option award shall immediately accelerate and vest in full if (A) within 12 months following a sale event, as defined in our 2008 Stock Incentive Plan, Mr. Mason is terminated by us without cause or by Mr. Mason for good reason (each as defined in Mr. Masons employment agreement) or there is a material diminution of Mr. Masons position, duties, authority or responsibilities or (B) such termination or diminution occurs within 90 days prior to such sale event. |
(5) | The shares of our Class B common stock subject to this option are scheduled to vest in equal monthly installments over six years commencing on the last day of the first full calendar month immediately following December 1, 2015, subject to continued service with us through each applicable vesting date. |
(6) | These restricted stock units will start to vest upon the consummation of either a sale event or an initial public offering of our common stock, if such event occurs prior to February 28, 2026. Upon (i) the consummation of a sale event, as defined in our 2008 Stock Incentive Plan, or (ii) the later of (x) six months following an initial public offering of our common stock or (y) such period of time following an initial public offering of our common stock that the shares are not subject to a lock-up, these restricted stock units will vest as to an amount equal to 12,000 multiplied by a fraction, the numerator of which is the number of full months since February 3, 2018 that Mr. Mason has provided services to us and the denominator of which is 48, and the balance of these restricted stock units will vest in equal monthly installments thereafter such that 100% of the restricted stock units will vest as of January 31, 2022, subject to continued service with us through each applicable vesting date. Additionally, these restricted stock units will accelerate and vest in full if (A) within 12 months following a sale event, as defined in our 2008 Stock Incentive Plan, Mr. Mason is terminated by us without cause or by Mr. Mason for good reason, each as defined in Mr. Masons employment agreement, or there is a material diminution of Mr. Masons position, duties, authority or responsibilities or (B) such termination or diminution occurs within 6 months prior to such sale event. |
In May 2018, our board of directors approved, effective as of immediately prior to the commencement of trading of our Class A common stock on the New York Stock Exchange, grants of 80,000, 7,197 and 7,197 restricted stock units to Messrs. Birnbaum, Mendal and Mason, respectively, with vesting subject to the consummation of either a sale event or an initial public offering of our common stock, and, in the case of the restricted stock units granted to Mr. Birnbaum, further subject to time-based vesting over seven years from the date of grant, and, in the case of the restricted stock units granted to Messrs. Mendal and Mason, with half of such restricted stock units further subject to time-based vesting over four years from the date of grant and the other half of such restricted stock units further subject to performance-based and time-based vesting with respect to the first four fiscal years completed following the date of grant.
Employment Offer Letters and Agreements
Seth Birnbaum
On August 27, 2010, we entered into an offer letter with Seth Birnbaum, who currently serves as our president and chief executive officer. The offer letter provides for Mr. Birnbaums at-will employment, beginning August 27, 2010, and sets forth his initial annual base salary, an initial sign-on bonus of $6,250, target bonus and initial option grants, as well as his eligibility to participate in our benefit plans generally. Mr. Birnbaums current annual base salary is $250,000. Mr. Birnbaum is subject to our standard Employee Agreement Regarding Inventions, Confidentiality and Non-Competition pursuant to which Mr. Birnbaum is subject to covenants for confidentiality in perpetuity, non-solicitation of employees and customers for 24 months post-termination and non-competition for 18 months post-termination.
Jayme Mendal
On July 31, 2017, we entered into an offer letter with Jayme Mendal, who currently serves as our chief revenue officer. The offer letter provides for Mr. Mendals at-will employment, beginning September 4, 2017, and sets forth his initial annual base salary, an initial sign-on bonus of $39,200, target bonus and initial option grants, as well as his eligibility to participate in our benefit plans generally. Mr. Mendals current annual base salary is $200,000, and he is eligible to receive a discretionary cash annual bonus of up to $200,000 based on the achievement of agreed upon targets. Mr. Mendal was granted an initial option grant under our 2008 Stock Incentive Plan to purchase an aggregate
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of 33,360 shares of our Class B common stock. The option vests with respect to 25% of the shares on the one-year anniversary of the date of grant and 1/48th of the shares each month thereafter, subject to Mr. Mendals continued service with us on each applicable vesting date. Upon a sale event, as defined in the 2008 Stock Incentive Plan, 50% of Mr. Mendals then unvested shares shall immediately vest. In addition, if prior to September 4, 2018, we close a Series C financing or if there is a sale event, Mr. Mendals stock options shall be treated as having vested monthly commencing as of the first month following his date of hire, in lieu of being subject to vesting as to 25% of the shares as of the one-year anniversary of the date of grant. Mr. Mendal is subject to our standard Employee Agreement Regarding Inventions, Confidentiality and Non-Competition pursuant to which Mr. Mendal is subject to covenants for confidentiality in perpetuity, non-solicitation of employees and customers for 24 months post-termination and non-competition for 18 months post-termination.
David Mason
On February 3, 2014, we entered into an employment agreement with David Mason, who currently serves as our general counsel and secretary. The employment agreement provides for Mr. Masons at-will employment, beginning February 3, 2014, and sets forth his initial annual base salary as well as his eligibility to participate in our benefit plans generally. Mr. Masons current annual base salary is $300,000. Mr. Mason is subject to an employee non-disclosure, non-solicitation and invention assignment agreement. In the event that Mr. Masons employment with us is terminated without cause or he resigns for good reason, each as defined in his employment agreement, then, subject to and contingent upon Mr. Masons execution, delivery and non-revocation (if applicable) of a general release in a form satisfactory to us within 60 days after the termination date, Mr. Mason shall be entitled to receive, among other things, (i) payments equal to his annual base salary, payable in accordance with our normal payroll practices, over the 12 months following his termination date, (ii) acceleration of unvested equity pursuant to the terms of Mr. Masons stock option agreements or other equity award agreements and (iii) continuation of welfare benefit plans for 12 months following his termination date.
Retirement Benefits
We maintain a retirement plan for the benefit of our employees, including our named executive officers. The plan is intended to qualify as a tax-qualified 401(k) plan so that contributions to the 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan (except in the case of contributions under the 401(k) plan designated as Roth contributions). The 401(k) plan provides that each participant may contribute up to an annual statutory limit. Participants who are at least 50 years old can also contribute additional amounts based on statutory limits for catch-up contributions. Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plans trustee as directed by participants.
Employee Benefits and Perquisites
Our named executive officers are eligible to participate in our health and welfare plans to the same extent as all full-time employees. In addition, we pay a retainer for a dedicated company car and driver to be used for business purposes, which, subject to availability, may be used by our executive officers for personal use.
Director Compensation
We did not pay any compensation to our non-employee directors for the year ended December 31, 2017. Since inception, the only compensation paid by us to our non-employee directors was a nonstatutory stock option for the purchase of 2,500 shares of common stock granted to John Lunny on August 11, 2014, 2,500 shares of common stock granted to Sanju Bansal on August 11, 2014 and 23,750 shares of Class A common stock granted to Mira Wilczek on May 1, 2018, as well as compensation for George Neble and John Shields that was approved in May 2018 in connection with their election to our board of directors. Messrs. Neble and Shields each will receive annual compensation for their service as a member of our board of directors consisting of a $30,000 cash retainer and $125,000 of restricted stock units, representing the right to receive shares of Class A common stock, which awards shall vest in full on the first anniversary of the date of grant or upon a change in control of our company. Messrs. Neble
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and Shields each received a grant of 1,499 restricted stock units, representing the right to receive an equal number of shares of Class A common stock, on May 1, 2018. We also have a policy of reimbursing our directors for their reasonable out-of-pocket expenses incurred in attending board of directors and committee meetings.
As of December 31, 2017, Seth Birnbaum held 72,388 shares of our Class B common stock, options for the purchase of up to 30,028 shares of our Class B common stock and no restricted stock units; Sanju Bansal held 23,207 shares of our Class B common stock, 25,206 shares of our Series B preferred stock, options for the purchase of up to 2,500 shares of our Class B common stock and no restricted stock units; and John Lunny held options for the purchase of up to 2,500 shares of our Class B common stock and no restricted stock units. As of the same date, David Blundin and Mira Wilczek held no shares of our capital stock, no stock options for the purchase of our capital stock and no restricted stock units.
In May 2018, we approved a non-employee director compensation program to become effective as of immediately prior to the commencement of trading of our Class A common stock on the New York Stock Exchange. Under this program, non-employee directors that are not affiliated with Link Ventures will receive the cash compensation set forth below, and on the date of the first board meeting held on or after the date of each annual meeting of our stockholders, each non-employee director that is not affiliated with Link Ventures will be granted restricted stock units with respect to the number of shares of Class A common stock determined by dividing $125,000 by the closing price of our Class A common stock on the New York Stock Exchange on the date of grant. Unless otherwise provided at the time of grant, and subject to the non-employee directors continued service as a director, each such restricted stock unit will vest with respect to 100% of the shares subject thereto on the earlier of the first anniversary of the grant date and the date of our next annual meeting of stockholders and, in the event of a change in control of our company, the vesting of such restricted stock units will accelerate in full.
Following the commencement of trading of our Class A common stock on the New York Stock Exchange, each non-employee director that is not affiliated with Link Ventures will be eligible to receive compensation for his or her service on our board of directors or the audit committee of our board of directors, consisting of annual cash retainers paid quarterly in arrears, as follows:
Position |
Retainer | |||
Board member |
$ | 30,000 | ||
Audit committee chair |
20,000 | |||
Audit committee member |
10,000 |
Stock Option and Other Compensation Plans
Prior to this offering, we granted awards under our Amended and Restated 2008 Stock Incentive Plan, which as amended to date, we refer to as the 2008 Stock Incentive Plan. Following the completion of this offering, we expect to grant awards under our 2018 Equity Incentive Plan.
2008 Stock Incentive Plan
We initially adopted the 2008 Stock Incentive Plan in October 2008. Our board of directors subsequently approved an amendment and restatement of the 2008 Stock Incentive Plan in October 2016. Following the effectiveness of our Second Amended and Restated Certificate of Incorporation in September 2017, outstanding options to purchase our common stock were automatically converted into options to purchase an equal number of shares of our Class B common stock with no change in the applicable exercise price, vesting schedule or term, and shares of our common stock issuable upon vesting of outstanding restricted stock units automatically converted into Class B common stock upon vesting. As a result, the 2008 Stock Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock units and shares, restricted or otherwise, of our Class A and Class B common stock. Our employees, officers, directors, consultants and other individuals who provide services to us are eligible to receive awards under the 2008 Stock Incentive Plan;
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however, incentive stock options may only be granted to our employees. Subject to adjustment as provided below, a maximum aggregate of 1,055,089 shares of our Class A and Class B common stock are authorized for issuance under the 2008 Stock Incentive Plan.
The type of awards granted under the 2008 Stock Incentive Plan and the terms of such awards are set forth in the applicable award agreements, provided that pursuant to the 2008 Stock Incentive Plan:
| Each stock option under the 2008 Stock Incentive Plan must have an exercise price per share of not less than 100% of the fair market value of the share on the date of the grant. However, any incentive stock option granted to a participant who, at the time the option is granted, holds shares representing more than 10% of the combined voting power of all outstanding voting shares must have an exercise price per share of not less than 110% of fair market value per share on the date of the grant. |
| Each restricted stock award under the 2008 Stock Incentive Plan is an offer by us to sell shares of our Class A common stock or Class B common stock, as applicable, subject to restrictions. Our board of directors (or a committee assigned by our board of directors) determines the time or times within which restricted stock may be subject to forfeiture, and all other conditions of any restricted stock award. |
| Each RSU under the 2008 Stock Incentive Plan entitles the participant to whom it is granted to a distribution from us of our Class A common stock or Class B common stock, as applicable, or an amount based on the value of our Class A common stock or Class B common stock, as applicable, upon the vesting or designated period or event following vesting. Distributions may be made in cash, shares or a combination of cash and shares. |
Pursuant to the terms of the 2008 Stock Incentive Plan, our board of directors (or a committee assigned by our board of directors) administers the 2008 Stock Incentive Plan. All decisions, interpretations and other actions of our board of directors are final and binding on all persons. In addition, subject to any limitations in the 2008 Stock Incentive Plan, our board of directors selects the recipients of awards and determines:
| the number of shares of our Class A common stock or Class B common stock covered by options and the dates upon which the options become exercisable; |
| the type of options to be granted; |
| the duration of options, which may not be in excess of ten years (five years in the case of a participant who, at the time the option is granted, holds shares representing more than 10% of the combined voting power of all outstanding voting shares); |
| the exercise price of options, which must be at least equal to the fair market value of our Class A common stock or Class B common stock, as applicable, on the date of grant; |
| whether and under what circumstances an option may be exercised without a payment of cash; |
| whether, to what extent and under what circumstances shares and other amounts payable with respect to an award may be deferred either automatically or at the election of the participant; and |
| the number of shares of our Class A common stock and the number of shares of our Class B common stock subject to, and the terms of, any restricted stock awards or restricted stock units, and the terms and conditions of such awards, including conditions for forfeiture or repurchase, issue price and repurchase price. |
Our board of directors has the authority to adopt, amend and repeal such administrative rules, guidelines and practices governing the 2008 Stock Incentive Plan as it, from time to time, deems advisable.
Effect of Certain Changes in Capitalization. Pursuant to the 2008 Stock Incentive Plan, in the event of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in our Class A common stock or Class B common stock, the outstanding shares of Class A common stock
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or Class B common stock, as applicable, are increased or decreased or are exchanged for a different number or kind of shares or other securities of our company, or additional shares or new or different shares or other securities of our company or other non-cash assets are distributed with respect to such shares of Class A common stock or Class B common stock, as applicable, or other securities or, if, as a result of any merger, consolidation or sale of all or substantially all of the assets of our company, the outstanding shares of Class A common stock or Class B common stock are converted into or exchanged for a different number or kind of securities, our board of directors (or a committee assigned by our board of directors) may make appropriate or proportionate adjustments to each of:
| the maximum number or kind of shares reserved for issuance under the 2008 Stock Incentive Plan; |
| the maximum number of shares that may be granted in the form of incentive stock options; |
| the maximum number of shares that may be granted under a performance-based award; |
| the maximum number and kind of shares or other securities subject to any then outstanding awards under the 2008 Stock Incentive Plan; and |
| the repurchase price per share subject to each outstanding restricted stock award. |
Effect of Certain Corporate Transactions. Upon or in anticipation of a sale event (as defined in the 2008 Stock Incentive Plan), the 2008 Stock Incentive Plan and all outstanding awards under the 2008 Stock Incentive Plan shall terminate upon the effective date of such sale event, unless provision is made otherwise in connection with the sale event in the sole discretion of the parties to the sale event. Upon such termination of the 2008 Stock Incentive Plan, each participant under the 2008 Stock Incentive Plan shall be permitted, within a specified period of time prior to the sale event, to exercise all outstanding vested options held by the participant, including those that will become vested upon the consummation of the sale event. Our board of directors may, in its sole discretion, cancel any award held by a participant affected by the change in control in exchange for cash and/or other substitute consideration with a value equal to (x) the number of shares of Class A common stock or Class B common stock, as applicable, subject to that option, multiplied by (y) the difference, if any, between the fair market value per share of the Class A common stock or Class B common stock, as applicable, on the date of the change in control and the exercise price of that option; provided, that if the fair market value per share of Class A common stock or Class B common stock, as applicable, on the date of the change in control does not exceed the exercise price of any such option, our board of directors may cancel that option without any payment of consideration therefor.
As of April 30, 2018, under the 2008 Stock Incentive Plan, options to purchase 343,841 shares of our Class B common stock were outstanding at a weighted-average exercise price of $39.18 per share, options to purchase 72,615 shares of our Class A common stock were outstanding at a weighted-average exercise price of $56.74 per share, 351,940 shares of Class B common stock had been issued upon the exercise of options and no shares of Class A common stock had been issued upon the exercise of options. Since April 30, 2018, we have granted additional options to purchase an aggregate of 106,500 shares of Class A common stock under the 2008 Stock Incentive Plan at an exercise price of $83.34 per share and restricted stock units with respect to 12,998 shares of Class A common stock. In addition, as of April 30, 2018, 30,312 shares of Class B common stock and no shares of Class A common stock were issuable upon the vesting of outstanding restricted stock units, and no restricted stock units had vested. The vesting of all of these restricted stock units is subject, among other things, to the occurrence of a liquidity event, which includes the closing of this offering. If this offering had closed on April 30, 2018, 2,562 of these restricted stock units would have vested immediately, resulting in the issuance of an equal number of shares of our Class B common stock.
No further awards will be made under the 2008 Stock Incentive Plan following the effectiveness of this registration statement of which this prospectus forms a part; however, awards outstanding under the 2008 Stock Incentive Plan will continue to be governed by their existing terms. Our board of directors may amend, suspend or terminate the 2008 Stock Incentive Plan at any time and for any reason, except that any amendment which
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would adversely affect the rights of a participant with respect to an award requires the consent of such participant and any amendment of the 2008 Stock Incentive Plan that increases the number of shares of our Class B common stock available for issuance under the 2008 Stock Incentive Plan or that materially changes the class of persons who are eligible for the grant of awards is subject to the approval of our stockholders.
2018 Equity Incentive Plan
In 2018, our board of directors adopted, and we expect our stockholders will approve, the 2018 Equity Incentive Plan, which will become effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. The 2018 Equity Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards.
Upon effectiveness of the 2018 Equity Incentive Plan, the following shares will be reserved for issuance under the 2018 Equity Incentive Plan:
| shares of Class A common stock; |
| a number of shares of Class A common stock (up to a maximum of shares), equal to the sum of the number of shares of Class A common stock and Class B common stock then available for issuance under the 2008 Stock Incentive Plan and the number of shares of Class A common stock and Class B common stock subject to outstanding awards under the 2008 Stock Incentive Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right (subject, in the case of incentive stock options, to any limitations of the Internal Revenue Code); plus |
| an annual increase in shares of Class A common stock, to be added on the first day of each fiscal year, beginning with the fiscal year ending and continuing until and including the fiscal year ending , equal to the least of (1) shares; (2) % of the sum of the number of shares of Class A common stock and Class B common stock outstanding on the first day of such fiscal year; and (3) an amount determined by our board of directors. |
Our employees, officers, directors, consultants and advisors will be eligible to receive awards under the 2018 Equity Incentive Plan. Incentive stock options, however, may only be granted to our employees. We expect to grant under the 2018 Equity Incentive Plan restricted stock units with respect to an aggregate of 219,750 shares to certain of our employees and restricted stock units with respect to an aggregate of shares to certain of our non-employee directors, assuming an initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, in each case pursuant to grants approved by our board of directors in May 2018 to be effective as of immediately prior to the commencement of trading of our Class A common stock on the New York Stock Exchange.
Pursuant to the terms of the 2018 Equity Incentive Plan, our board of directors (or a committee delegated by our board of directors) will administer the plan and, subject to any limitations in the plan, will select the recipients of awards and determine:
| the number of shares covered by options and the dates upon which the options become exercisable; |
| the type of options to be granted; |
| the duration of options, which may not be in excess of ten years (under applicable tax law, five years in the case of a participant who, at the time the option is granted, holds shares representing more than 10% of the combined voting power of all outstanding voting shares); |
|
the exercise price of options, which must be at least equal to the fair market value of the Class A common stock on the date of grant; provided, however, that under applicable tax law, any incentive |
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stock option granted to a participant who, at the time the option is granted, holds shares representing more than 10% of the combined voting power of all outstanding voting shares must have an exercise price per share of not less than 110% of fair market value per share on the date of the grant; and |
| the number of shares subject to and the terms of any stock appreciation rights, restricted stock awards, restricted stock units or other stock-based awards and the terms and conditions of such awards, including conditions for forfeiture, repurchase, issue price and repurchase price (though the measurement price of stock appreciation rights must be at least equal to the fair market value of the Class A common stock on the date of grant and the duration of such awards may not be in excess of ten years). |
If our board of directors delegates authority to an executive officer to grant awards under the 2018 Equity Incentive Plan, the executive officer will have the power to make awards to all of our employees, except executive officers. Our board of directors will fix the terms of the awards to be granted by such executive officer, including the exercise price of such awards (which may include a formula by which the exercise price will be determined), the maximum number of shares subject to awards that such executive officer may make, and the time period in which such awards may be granted.
The 2018 Equity Incentive Plan contains limits on awards that may be made under the 2018 Equity Incentive Plan to our non-employee directors. The maximum value (calculated based on grant date fair value for financial reporting purposes) of shares of Class A common stock subject to awards granted under the 2018 Equity Incentive Plan in any calendar year to any individual non-employee director may not exceed $ in the case of an incumbent director, $ in the case of the chairman of our board of directors, or $ in the case of a new director during his or her first year of service. The maximum amount of cash compensation paid in any calendar year under the 2018 Equity Incentive Plan to any individual non-employee director may not exceed $ in the case of an incumbent director or $ in the case of the chairman of our board of directors. However, our board of directors may, in its discretion, make exceptions to this limit for individual non-employee directors in extraordinary circumstances, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation.
Effect of Certain Changes in Capitalization. Upon the occurrence of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Class A common stock other than an ordinary cash dividend. We shall equitably adjust (or make substitute awards, if applicable) in the manner determined by our board of directors:
| the number and class of securities available under the 2018 Equity Incentive Plan; |
| the share counting rules under the 2018 Equity Incentive Plan; |
| the number and class of securities and exercise price per share of each outstanding option; |
| the share and per-share provisions, and measurement price of each outstanding stock appreciation right; |
| the number of shares subject to, and the repurchase price per share subject to, each outstanding restricted stock award; and |
| the share and per-share related provisions and the purchase price, if any, of each restricted stock unit and each other stock-based award. |
Effect of Certain Corporate Transactions. In connection with a merger or other reorganization event (as defined in the 2018 Equity Incentive Plan), our board of directors may, on such terms as our board of directors determines (except to the extent specifically provided otherwise in an applicable award agreement or other agreement between the participant and us), take any one or more of the following actions pursuant to the 2018 Equity Incentive Plan as to all or any (or any portion of) outstanding awards, other than restricted stock awards:
| provide that all outstanding awards shall be assumed, or substantially equivalent awards shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); |
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| upon written notice to a participant, provide that all of the participants unvested awards will be forfeited immediately prior to the consummation of such reorganization event and/or provide that all of the participants vested but unexercised awards will terminate immediately prior to the consummation of such reorganization event unless exercised by the participant (to the extent then exercisable) within a specified period following the date of such notice; |
| provide that outstanding awards shall become exercisable, realizable or deliverable, or restrictions applicable to an award shall lapse, in whole or in part, prior to or upon such reorganization event; |
| in the event of a reorganization event pursuant to which holders of Class A common stock will receive a cash payment for each share surrendered in the reorganization event, make or provide for a cash payment to the participants with respect to each award held by a participant equal to (1) the number of shares of Class A common stock subject to the vested portion of the award (after giving effect to any acceleration of vesting that occurs upon or immediately prior to such reorganization event) multiplied by (2) the excess, if any, of the cash payment for each share surrendered in the reorganization event over the exercise, measurement or purchase price of such award and any applicable tax withholdings, in exchange for the termination of such award; and/or |
| provide that, in connection with our liquidation or dissolution, awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise, measurement or purchase price thereof and any applicable tax withholdings). |
Our board of directors does not need to take the same action with respect to all awards, all awards held by a participant or all awards of the same type.
In the case of certain restricted stock units, no assumption or substitution is permitted, and the restricted stock units will instead be settled in accordance with the terms of the applicable restricted stock unit agreement.
Upon the occurrence of a reorganization event other than our liquidation or dissolution, the repurchase and other rights with respect to outstanding restricted stock awards will continue for the benefit of the successor company and will, unless the board of directors may otherwise determine, apply to the cash, securities or other property into which shares of Class A common stock are converted or exchanged pursuant to the reorganization event. However, our board of directors may provide for the termination or deemed satisfaction of the repurchase and other rights upon the occurrence of a reorganization event other than our liquidation or dissolution in the restricted stock award agreement or another agreement between the participant and us. Upon the occurrence of a reorganization event involving our liquidation or dissolution, all restrictions and conditions on each outstanding restricted stock award will automatically be deemed terminated or satisfied, unless otherwise provided in the agreement evidencing the restricted stock award or any other agreement between the participant and us.
At any time, our board of directors may provide that any award under the 2018 Equity Incentive Plan will become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in whole or in part as the case may be.
Unless our stockholders approve such action, the 2018 Equity Incentive Plan provides that we may not (except as otherwise permitted in connection with a change in capitalization or reorganization event):
| amend any outstanding stock option or stock appreciation right granted under the 2018 Equity Incentive Plan to provide an exercise or measurement price per share that is lower than the then-current exercise or measurement price per share of such outstanding award; |
| cancel any outstanding option or stock appreciation right (whether or not granted under the 2018 Equity Incentive Plan) and grant in substitution therefor new awards under the 2018 Equity Incentive Plan (other than substitute awards permitted in connection with a merger or consolidation of an entity with us or our acquisition of property or stock of another entity) covering the same or a different number of shares of Class A common stock and having an exercise or measurement price per share lower than the then-current exercise or measurement price per share of the cancelled award; |
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| cancel in exchange for a cash payment any outstanding option or stock appreciation right with an exercise or measurement price per share above the then-current fair market value of the Class A common stock (valued in the manner determined by (or in the manner approved by) our board of directors); or |
| take any other action that constitutes a repricing within the meaning of New York Stock Exchange rules or rules of any other exchange or marketplace on which our Class A common stock is listed or traded. |
No award may be granted under the 2018 Equity Incentive Plan on or after the date that is ten years following the effectiveness of the registration statement of which this prospectus forms a part but awards previously granted may extend beyond that date. Our board of directors may amend, suspend or terminate the 2018 Equity Incentive Plan or any portion of the 2018 Equity Incentive Plan at any time, except that stockholder approval may be required to comply with applicable law or stock market requirements.
Limitation of Liability and Indemnification
Our restated certificate of incorporation, which will become effective upon the closing of this offering, limits the personal liability of directors for breach of fiduciary duty to the maximum extent permitted by the Delaware General Corporation Law and provides that no director will have personal liability to us or to our stockholders for monetary damages for breach of fiduciary duty or other duty as a director. However, these provisions do not eliminate or limit the liability of any of our directors:
| for any breach of the directors duty of loyalty to us or our stockholders; |
| for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; |
| for voting or assenting to unlawful payments of dividends, stock repurchases or other distributions; or |
| for any transaction from which the director derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to such amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
In addition, our restated certificate of incorporation, which will become effective upon the closing of this offering, provides that we must indemnify our directors and officers and we must advance expenses, including attorneys fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions.
We maintain a general liability insurance policy that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers. In addition, we have entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements may require us, among other things, to indemnify each such director or executive officer for some expenses, including attorneys fees, judgments, fines and settlement amounts incurred by him in any action or proceeding arising out of his service as one of our directors or executive officers.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors. We have agreed that we will be the indemnitor of first resort, however, with respect to any claims against these directors for indemnification claims that are indemnifiable by both us and their employers. Accordingly, to the extent that
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indemnification is permissible under applicable law, we will have full liability for such claims (including for the advancement of any expenses) and we have waived all related rights of contribution, subrogation or other recovery that we might otherwise have against these directors employers.
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our capital stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend or terminate the plan in some circumstances. Our directors and executive officers may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.
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Other than compensation arrangements for our executive officers and directors which are described elsewhere in this prospectus, below we describe transactions since January 1, 2015 to which we were or will be a participant and in which:
| the amounts involved exceeded or will exceed $120,000; and |
| any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest. |
Preferred Stock Financings
Between June and December 2016, we issued and sold an aggregate of 602,786 shares of Series B preferred stock at a purchase price of $59.51 per share (currently convertible into Class B common stock on a one-for-one basis and representing a Class B common stock-equivalent purchase price of $59.51 per share), for an aggregate purchase price of approximately $35.9 million. In December 2016, entities affiliated with Link Ventures bought 34,656 shares of Series B preferred stock for a total sale price of $2.1 million. In September 2016 and October 2016, entities and persons affiliated with Stratim Capital bought 50,411 and 203,326 shares, respectively, of Series B preferred stock for a total sale price of $3.0 million and $12.1 million, respectively. Stratim Capital was not a related party at the time of its initial purchase in September 2016.
Company Repurchases From Executive Officers, Directors and 5% Stockholders
In March 2015, we repurchased shares of common stock from Seth Birnbaum and Tomas Revesz, executive officers of our company, at a purchase price of $30.19 per share. The purchase price was paid by offsetting the principal amounts due under existing promissory notes issued to us by Messrs. Birnbaum and Revesz. The following table summarizes the repurchases:
Stockholder |
Shares of
Common Stock |
Total
Sale Price |
||||||
Seth Birnbaum |
50,000 | $ | 1,509,500 | |||||
Tomas Revesz |
37,500 | 1,132,125 |
Between July 2016 and March 2017, we conducted three separate tender offers and repurchased an aggregate of 492,056 outstanding shares of common stock at a price per share of $55.05. The following table summarizes the repurchases of shares of common stock held by our directors, executive officers and 5% stockholders:
Seller |
Shares of
Common Stock |
Total Sale
Price |
||||||
Seth Birnbaum |
27,380 | $ | 1,507,269 | |||||
Tomas Revesz |
27,616 | 1,520,261 | ||||||
John Wagner |
11,056 | 608,633 | ||||||
David Mason |
10,795 | 594,265 | ||||||
Eugene Suzuki |
6,223 | 342,576 | ||||||
Darryl Auguste |
5,489 | 302,169 | ||||||
John Shields |
1,991 | 109,605 | ||||||
John Giordano(1) |
4,323 | 237,981 | ||||||
Tom Ellis(1) |
8,742 | 481,247 | ||||||
Jonathan Shapiro(1) |
8,742 | 481,247 | ||||||
Entities affiliated with Link Ventures(2) |
299,113 | 16,466,171 |
(1) | Former director. |
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(2) | Consists of 37,770 shares of our common stock repurchased from Cogo Labs, Inc., a wholly owned subsidiary of Link Equity Partners, LLC, which is wholly owned by David Blundin, 163,400 shares of our common stock repurchased from Link Ventures Investment Vehicle II, LLC and 97,943 shares of our common stock repurchased from Link Ventures Investment Vehicle II, LLC. |
Loans to Executive Officers
In 2011 and 2012, Seth Birnbaum, an executive officer of our company, borrowed an aggregate total of approximately $1.6 million from us pursuant to various promissory note and security agreements. The indebtedness was collateralized by shares of our common stock held by Mr. Birnbaum. In 2015, Mr. Birnbaum fully repaid all outstanding principal and accrued and unpaid interest relating to these borrowings by making cash payments totaling $117,303 and by offsetting the payments with the proceeds from our March 2015 repurchase of shares of our common stock held by Mr. Birnbaum, as set forth above under Company Repurchases from Executive Officers, Directors and 5% Stockholders.
In 2011 and 2012, Tomas Revesz, an executive officer of our company, borrowed an aggregate total of approximately $1.2 million from us pursuant to various promissory note and security agreements. The indebtedness was collateralized by shares of our common stock held by Mr. Revesz. In 2015, Mr. Revesz fully repaid all outstanding principal and accrued and unpaid interest relating to these borrowings by making cash payments totaling $82,203 and by offsetting the payments with the proceeds from our March 2015 repurchase of shares of our common stock held by Mr. Revesz, as set forth above under Company Repurchases from Executive Officers, Directors and 5% Stockholders.
In January 2016, we advanced to John Tawadros, our chief operating officer at the time, a bonus payment of $160,000, constituting his target bonus for 2016. We retained the right to recover from Mr. Tawadros any portion of this bonus advance that he did not earn based on his performance in 2016. Mr. Tawadros earned $120,000 of the bonus based on his performance in 2016 and he fully repaid the balance of the bonus advance in March 2017 with a cash payment of $40,000.
Loans from Link Ventures, LLLP
From 2011 to 2014, we borrowed an aggregate of $13.1 million from Link Ventures, LLLP under a series of promissory notes, and we refinanced an aggregate of $7.1 million in principal amount of this indebtedness with Link Ventures, LLLP in 2015 and 2016. We fully repaid all outstanding principal and interest under these loans between 2014 and 2016 though cash payments to Link Ventures, LLLP of $13.4 million in the aggregate.
Agreements with Entities Affiliated with Link Ventures
Cogo Labs, Inc., or Cogo Labs, a wholly owned subsidiary of Link Equity Partners, LLC, which is wholly owned by David Blundin, and various other affiliates and subsidiaries of Link Ventures, LLLP provide a range of marketing-related services to us, including email advertising, search engine marketing and market research data sharing services.
In September 2010, we entered into a data license agreement with Cogo Labs, Inc., whereby Cogo Labs granted to us a fully paid, perpetual, non-exclusive, worldwide license to use its market research data in exchange for a one-time payment of $270,000.
In June 2013, we entered into a website management and search engine marketing agreement with Affiliate Media Network, Inc., or AMN, a subsidiary of Link Ventures, LLLP. Pursuant to this agreement, we manage and maintain an AMN-owned website on AMNs behalf and conduct various marketing campaigns intended to drive potential insurance prospect traffic to the website under the direction of AMN. In exchange for this service, we retain all revenue directly or indirectly generated by us pursuant to content we provide on the website or as a result of any data we collect from the website or user interaction with the website. In consideration of costs
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incurred by AMN in connection with these marketing campaigns, we pay AMN actual and documented campaign costs directly incurred by AMN in connection with each such marketing campaign plus a fee equal to 1.25% of such costs.
We are also party to various data license and marketing services agreements with Cogo Labs, AMN, Reference Advisor, LLC, Cognius, LLC, Meta42 LLC, Nufit Media, Inc., Jobcase, Inc. (formerly known as Percipio Media) and Tenizen, Inc., each of which is a direct or indirect subsidiary of Link Ventures, LLLP, whereby each such entity provides marketing services to us by delivering EverQuote-related advertisements through websites, social media platforms, emails and other marketing campaigns.
We believe that the terms and conditions of each of these agreements are no less favorable to us than those that could be obtained in arms-length dealings. Pursuant to these agreements, we paid an aggregate of approximately $8.8 million in 2016 and approximately $8.6 million in 2017 to Link Ventures and entities affiliated with Link Ventures.
Registration Rights
We are a party to an investors rights agreement, originally entered into in August 2008 and most recently amended and restated in June 2016, with certain holders of our Class B common stock and certain holders of our preferred stock, including entities affiliated with Link Ventures and Stratim Capital. The investors rights agreement provides these holders the right, following the closing of this offering, to demand that we file a registration statement or request that their shares be included in a registration statement that we are otherwise filing. See Description of Capital StockRegistration Rights for additional information regarding these registration rights. Pursuant to the investors rights agreement, we are required to pay all registration expenses and indemnify these holders with respect to each registration of registrable shares that is effected.
Indemnification Agreements
Our restated certificate of incorporation provides that we will indemnify our officers and directors to the fullest extent permitted by Delaware law. In addition, we have entered into indemnification agreements with each of our directors and executive officers. See Limitation of Liability and Indemnification.
Policies and Procedures for Related Person Transactions
We expect that our board of directors will adopt written policies and procedures, which will become effective upon the closing of this offering, for the review of any transaction, arrangement or relationship in which our company is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), each of whom we refer to as a related person, has a direct or indirect material interest.
If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a related person transaction, the related person must report the proposed related person transaction to our general counsel. The policy will call for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by the audit committee of our board of directors. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy will also permit the chairman of the audit committee to review and, if deemed appropriate, approve proposed related person transactions that arise between audit committee meetings, subject to ratification by the audit committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.
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A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the audit committee after full disclosure of the related persons interest in the transaction. As appropriate for the circumstances, the audit committee will review and consider:
| the related persons interest in the related person transaction; |
| the approximate dollar value of the amount involved in the related person transaction; |
| the approximate dollar value of the amount of the related persons interest in the transaction without regard to the amount of any profit or loss; |
| whether the transaction was undertaken in the ordinary course of our business; |
| whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party; |
| the purpose of, and the potential benefits to us of, the transaction; and |
| any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction. |
The audit committee may approve or ratify the transaction only if it determines that, under all of the circumstances, the transaction is in or is not inconsistent with our companys best interests. The audit committee may impose any conditions on the related person transaction that it deems appropriate.
Pursuant to the SECs related person transaction disclosure rule, the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, will not be related person transactions for purposes of the policy:
| interests arising only from the related persons position as a director of another corporation or organization that is a party to the transaction; |
| interests arising only from the direct or indirect ownership by the related person and all other related persons in the aggregate of less than a 10% equity interest (other than a general partnership interest) in another entity which is a party to the transaction; |
| interests arising solely from the ownership of a class of our equity securities if all holders of that class of equity securities receive the same benefit on a pro rata basis; |
| compensation arrangements with executive officers if the compensation has been approved by the board of directors; |
| compensation for services as a director of our company if such compensation will be publicly reported pursuant to SEC rules; |
| interests arising solely from indebtedness of a 5% stockholder or an immediate family member of a 5% stockholder; |
| a transaction where the rates or charges involved in the transaction are determined by competitive bids; |
| a transaction that involves the rendering of services as a common or contract carrier or public utility at rates or charges fixed in conformity with law or governmental authority; and |
| a transaction that involves services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services. |
In addition, we expect that our board of directors will determine that transactions that are specifically contemplated by our corporate charter or bylaws are not related person transactions for purposes of the policy. We expect that the policy will provide that transactions involving compensation of executive officers shall be reviewed and approved by our board of directors in the manner specified in its charter.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of our capital stock, as of May 1, 2018, by:
| each person, or group of affiliated persons, known by us to beneficially own more than 5% of our Class A common stock or Class B common stock; |
| each of our directors; |
| each of our named executive officers; |
| all of our executive officers and directors as a group; and |
| each selling stockholder. |
The number of shares beneficially owned by each stockholder is determined under rules of the SEC and includes voting or investment power with respect to securities. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of Class B common stock subject to options, warrants or other rights held by such person that are currently exercisable or will become exercisable within 60 days after May 1, 2018 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.
We have based our calculation of the percentage of beneficial ownership prior to this offering on 20,550 shares of Class A common stock outstanding as of May 1, 2018 and 2,689,196 shares of Class B common stock outstanding as of May 1, 2018 (assuming the automatic conversion of all outstanding shares of preferred stock into an aggregate of 1,574,508 shares of Class B common stock upon the completion of this offering). We have based our calculation of the percentage of beneficial ownership after this offering on shares of Class A common stock and shares of Class B common stock (assuming the automatic conversion of all outstanding shares of preferred stock into an aggregate of 1,574,508 shares of Class B common stock upon the completion of this offering and the automatic conversion of shares of Class B common stock into an equivalent number of shares of Class A common stock upon their sale by the selling stockholders at the closing of this offering) outstanding immediately after the completion of this offering, assuming that the underwriters do not exercise their option to purchase up to an additional shares of our Class A common stock from us and an additional shares of our Class A common stock from the selling stockholders.
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Unless otherwise indicated, the address of all listed stockholders is c/o EverQuote, Inc., 210 Broadway, Cambridge, MA 02139. Each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.
Shares Beneficially
Owned Prior to Offering |
% of
Total Voting Power Prior to Offering |
Number of
Shares Offered |
Shares Beneficially
Owned After Offering |
% of
Total Voting Power After Offering |
||||||||||||||||||||||||||||||||||||||||
Class A | Class B | Class A | Class B | |||||||||||||||||||||||||||||||||||||||||
Name |
Number | % | Number | % | Number | % | Number | % | ||||||||||||||||||||||||||||||||||||
5% Stockholders |
||||||||||||||||||||||||||||||||||||||||||||
Entities and persons affiliated with Link Ventures, LLLP or subject to the Link voting agreement(1)(2) |
| | 1,664,655 | 61.9 | 61.9 | |||||||||||||||||||||||||||||||||||||||
Entities and persons affiliated with Stratim Capital, LLC(3) |
| | 253,737 | 9.4 | 9.4 | |||||||||||||||||||||||||||||||||||||||
Entities and persons affiliated with Savano Capital Partners(4) |
| | 158,605 | 5.9 | 5.9 | |||||||||||||||||||||||||||||||||||||||
Christopher H. Blundin |
3,000 | 14.6 | | | * | |||||||||||||||||||||||||||||||||||||||
John Giordano |
17,550 | 85.4 | | | * | |||||||||||||||||||||||||||||||||||||||
Named Executive Officers and Directors |
||||||||||||||||||||||||||||||||||||||||||||
Seth Birnbaum(5) |
| | 212,703 | 7.9 | 7.9 | |||||||||||||||||||||||||||||||||||||||
Jayme Mendal |
| | | | | |||||||||||||||||||||||||||||||||||||||
David Mason(6) |
| | 12,120 | * | * | |||||||||||||||||||||||||||||||||||||||
David Blundin(7) |
| | 1,797,720 | 66.8 | 66.8 | |||||||||||||||||||||||||||||||||||||||
Sanju Bansal(8) |
| | 50,913 | 1.9 | 1.9 | |||||||||||||||||||||||||||||||||||||||
John Lunny(9) |
| | 2,500 | * | * | |||||||||||||||||||||||||||||||||||||||
George Neble |
| | | | | |||||||||||||||||||||||||||||||||||||||
John Shields |
| | 9,559 | * | * | |||||||||||||||||||||||||||||||||||||||
Mira Wilczek(10) |
395 | 1.9 | 133,065 | 4.9 | 4.9 | |||||||||||||||||||||||||||||||||||||||
All executive officers and directors as a group (14 persons)(11) |
395 | 1.9 | 1,883,793 | 67.9 | 67.8 | |||||||||||||||||||||||||||||||||||||||
Other Selling Stockholders |
* | Less than 1%. |
(1) |
Consists of (i) 805,111 shares of Class B common stock issuable upon the conversion of Series A preferred stock held by Link Ventures Investment Vehicle II, LLC, (ii) 34,656 shares of Class B common stock issuable upon the conversion of Series B preferred stock held by LV2 LP EQ Series B SPV, LLC, (iii) 421,195 shares of Class B common stock held by Link Ventures, LLLP and (iv) 403,693 shares of Class B common stock held by other stockholders who are party to the Link voting agreement, as indicated in footnote 2 below. David Blundin is the managing member of Link Ventures Investment Vehicle II, LLC. David Blundin is also the managing member of Link Equity Partners, LLC, which is the managing member of LV2 EQ SPV Manager, LLC, which is the managing member of LV2 LP EQ Series B SPV, LLC. David Blundin is also the managing member of Link Management, LLC, which is the general partner of Link Ventures, LLLP. As a result of holding these positions, David Blundin may be deemed to hold voting and dispositive power with respect to the shares held by Link Ventures Investment Vehicle II, LLC, LV2 LP EQ Series B SPV, LLC, Link Ventures, LLLP and the parties to the Link voting agreement. Each of the Link Ventures entities and persons mentioned in this footnote disclaims beneficial ownership of the shares, except for those shares held of record by such entity, and except to the extent of their pecuniary interest therein. The address of the entities and persons mentioned in this footnote is One Kendall Square, Building 200 Suite B2106, Cambridge, Massachusetts 02139. |
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(2) | Pursuant to the Link voting agreement, David Blundin and John Giordano, or either of them, or their designees, hold an irrevocable proxy over shares of Class A common stock and Class B common stock held by stockholders who are party to the agreement, including certain of our directors, executive officers and holders of more than 5% of our capital stock, as indicated in the footnotes below, and such parties to the Link voting agreement have agreed, upon the closing of this offering, to vote all shares held by him, her or it in the manner directed by Link Ventures, LLLP. |
(3) | Consists of (i) 201,646 shares of Class B common stock issuable upon the conversion of Series B preferred stock held by Stratim Capital Growth Fund II, LLC, (ii) 50,411 shares of Class B common stock issuable upon the conversion of Series B preferred stock held by Stratim Newbury Fund, LLC and (iii) 1,680 shares of Class B common stock issuable upon the conversion of Series B preferred stock held by Zachary Abrams. Zachary Abrams is the managing partner of Stratim Capital, LLC, which is the manager of SCGF, LLC, which is the manager of Stratim Capital Growth Fund II, LLC and the manager of Stratim Newbury Fund, LLC. Zachary Abrams, as the managing partner of Stratim Capital, LLC, may be deemed to share voting and dispositive power with respect to the shares held by Stratim Capital Growth Fund II, LLC and Stratim Newbury Fund, LLC. Each of the Stratim Capital entities and persons mentioned in this footnote disclaims beneficial ownership of the shares, except for those shares held of record by such entity, and except to the extent of their pecuniary interest therein. The address of the entities and persons mentioned in this footnote is 333 Bush Street, Suite 2250, San Francisco, CA 94104. |
(4) | Consists of (i) 109,224 shares of Class B common stock issuable upon the conversion of Series B-1 preferred stock held by Savano Capital Partners II, L.P., (ii) 23,525 shares of Class B common stock issuable upon the conversion of Series B-1 preferred stock held by Savano-EverQuote LLC and (iii) 25,856 shares of Class B common stock held by Savano Capital Partners II, L.P. Thomas Smith and Gustav H. Koven are the members of the board of managers of Savano Partners Flow-Through II, LLC, which is the managing member of Savano Direct GP II, LLC, which is the general partner of Savano Capital Partners II, L.P. Thomas Smith, Bion Ludwig and Gustav H. Koven are managing members of Savano-SPV Manager LLC, which is the managing member of Savano-EverQuote LLC. As a result of holding these positions, Thomas Smith, Bion Ludwig and Gustav H. Koven may be deemed to hold voting and dispositive power with respect to the shares held by Savano Capital Partners II, L.P. and Savano-EverQuote LLC. Each of the Savano entities and persons mentioned in this footnote disclaims beneficial ownership of the shares, except for those shares held of record by such entity, and except to the extent of their pecuniary interest therein. The address of the entities and persons mentioned in this footnote is 6 E. Eager Street, Suite 4A, Baltimore, Maryland 21202. |
(5) | Consists of (i) 72,388 shares of Class B common stock, (ii) 7,250 shares of Class B common stock subject to options exercisable within 60 days following May 1, 2018, and (iii) 133,065 shares of Class B common stock issuable upon conversion of Series A preferred stock held by Cogo Labs, Inc., with respect to which Cogo Labs, Inc. has empowered Mr. Birnbaum and Mira Wilczek, acting together and not individually, to exercise investment power, which may be revoked by Cogo Labs, Inc. at any time. The shares and stock options directly held by Mr. Birnbaum are subject to the Link voting agreement |
(6) | Consists of shares of Class B common stock subject to options exercisable within 60 days following May 1, 2018. All such stock options are subject to the Link voting agreement. |
(7) |
Consists of (i) 805,111 shares of Class B common stock issuable upon the conversion of Series A preferred stock held by Link Ventures Investment Vehicle II, LLC, (ii) 34,656 shares of Class B common stock issuable upon the conversion of Series B preferred stock held by LV2 LP EQ Series B SPV, LLC, (iii) 421,195 shares of Class B common stock held by Link Ventures, LLLP, (iv) 403,693 shares of Class B common stock held by other stockholders who are party to the Link voting agreement, as indicated in footnote 2 above, and (v) 133,065 shares of Class B common stock issuable upon conversion of Series A preferred stock held by Cogo Labs, Inc., with respect to which Cogo Labs, Inc. has empowered Seth Birnbaum and Mira Wilczek, acting together and not individually, to exercise investment power, which may be revoked by Cogo Labs, Inc. at any time. Mr. Blundin is the controlling stockholder of Cogo Labs, Inc. and thus may be deemed to share dispositive power with respect to the shares held by Cogo Labs, Inc. David Blundin is the managing member of Link Ventures Investment Vehicle II, LLC. David Blundin is also the managing member of Link Equity Partners, LLC, which is the managing member of LV2 EQ SPV Manager, LLC, which is the managing member of LV2 LP EQ Series B SPV, LLC. David Blundin is also the managing member of Link Management, LLC, which is the general partner of Link Ventures, LLLP. As |
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a result of holding these positions, David Blundin may be deemed to hold voting and dispositive power with respect to the shares held by Link Ventures Investment Vehicle II, LLC, LV2 LP EQ Series B SPV, LLC, Link Ventures, LLLP and the parties to the Link voting agreement. |
(8) | Consists of (i) 23,207 shares of Class B common stock, (ii) 25,206 shares of Class B common stock issuable upon conversion of Series B preferred stock and (iii) 2,500 shares of Class B common stock subject to options exercisable within 60 days following May 1, 2018. All such shares and stock options are subject to the Link voting agreement. |
(9) | Consists of shares of Class B common stock subject to options exercisable within 60 days following May 1, 2018. All such stock options are subject to the Link voting agreement. |
(10) | Consists of (i) 395 shares of Class A common stock subject to options exercisable within 60 days following May 1, 2018, and (ii) 133,065 shares of Class B common stock issuable upon conversion of Series A preferred stock held by Cogo Labs, Inc., with respect to which Cogo Labs, Inc. has empowered Ms. Wilczek and Seth Birnbaum, acting together and not individually, to exercise investment power, which may be revoked by Cogo Labs, Inc. at any time. |
(11) | Includes (i) 395 shares of Class A common stock subject to options held by our executive officers and directors exercisable within 60 days following May 1, 2018, and (ii) 86,162 shares of Class B common stock subject to options held by our executive officers and directors exercisable within 60 days following May 1, 2018. |
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General
Following the closing of this offering, our authorized capital stock will consist of shares of Class A common stock, par value $0.001 per share, shares of Class B common stock, par value $0.001 per share, and shares of preferred stock, par value $0.001 per share. The following description of our capital stock and provisions of our restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the restated certificate of incorporation and amended and restated bylaws that will become effective upon the closing of this offering. Copies of these documents have been filed with the SEC as exhibits to the registration statement of which this prospectus forms a part. The following description of our capital stock reflects changes to our capital structure that will occur upon the closing of this offering.
As of April 30, 2018, assuming the automatic conversion of all outstanding shares of preferred stock into an aggregate of shares of Class B common stock upon the completion of this offering, there were shares of Class B common stock outstanding, held by 282 stockholders of record, 20,550 shares of Class A common stock outstanding, held by two stockholders of record, and no shares of preferred stock outstanding.
We are issuing shares of Class A common stock in this offering. The outstanding shares of Class B common stock are held by our executive officers, employees, directors and their affiliates, and certain other stockholders who held our capital stock immediately prior to this offering.
Class A and Class B Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock and Class B common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See the section titled Dividend Policy.
Voting Rights
Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders, and holders of Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Holders of Class A common stock and Class B common stock vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation.
No Preemptive or Similar Rights
Holders of Class A common stock and Class B common stock are not entitled to preemptive rights, and are not subject to conversion, redemption or sinking fund provisions, except for the conversion provisions with respect to the Class B common stock described below.
Right to Receive Liquidation Distributions
If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of Class A common stock, Class B common and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
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Conversion
Each outstanding share of Class B common stock is convertible at any time, at the option of the holder thereof, into one share of Class A common stock. Each outstanding share of Class B common stock will convert automatically into one share of Class A common stock upon its transfer, whether or not for value and whether voluntary or involuntary or by operation of law, except for certain exceptions and permitted transfers described in our restated certificate of incorporation, including certain transfers by a stockholder to (1) certain trusts for the benefit of the stockholder or other persons, so long as the stockholder, either alone or with a family member, has sole dispositive power and exclusive voting control over the transferred shares; (2) an individual retirement account or a pension, profit sharing, stock bonus or other type of plan or trust of which the stockholder is a participant or beneficiary, so long as the stockholder, either alone or with a family member, has sole dispositive power and exclusive voting control over the transferred shares, (3) a corporation, partnership or limited liability company in which the stockholder, either alone or with a family member, has sufficient ownership interests or otherwise has legally enforceable rights such that the stockholder, either alone or with a family member, retains sole dispositive power and exclusive voting control over the transferred shares, and (4) any other entity that is a direct or indirect wholly owned subsidiary of the stockholder, a parent of the stockholder, under common control with the stockholder, or was the holder of preferred stock on both the date of transfer and on January 19, 2018. In addition, each outstanding share of Class B common stock held by a stockholder who is a natural person, or held by the permitted transferees of such stockholder, will convert automatically into one share of Class A common stock nine months after the death or incapacity of such stockholder.
The conversion of Class B common stock into Class A common stock, whether voluntary, upon a transfer of Class B common stock or upon the death of a holder of Class B common stock, will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares of Class B common stock.
All outstanding Class B common stock will convert automatically into Class A common stock, on a share-for-share basis, upon the date and time, or occurrence of an event, specified by vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Class B common stock. In addition, all outstanding Class B common stock will convert automatically into Class A common stock, on a share-for-share basis, at such time as the aggregate voting power of all then outstanding shares of Class B common stock represents less than 10% of the aggregate voting power of all then outstanding shares of our capital stock.
Each share of Class B common stock that is converted into Class A common stock will thereupon automatically be retired and not be available for reissuance. If we subsequently wish to issue more shares of Class B common stock than are then authorized for issuance, we would first have to amend our restated certificate of incorporation with the approval of our board of directors and stockholders in accordance with the Delaware General Corporation Law.
Fully Paid and Non-Assessable
In connection with this offering, our legal counsel will opine that the shares of Class A common stock to be issued in this offering will be fully paid and non-assessable.
Preferred Stock
Under the terms of our restated certificate of incorporation that will become effective upon the closing of this offering, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of
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preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.
Stock Options
As of April 30, 2018, options to purchase 343,841 shares of Class B common stock were outstanding under the 2008 Stock Incentive Plan at a weighted-average exercise price of $39.18 per share, of which 191,926 shares were vested and exercisable at a weighted-average exercise price of $27.42 per share, and options to purchase 72,615 shares of Class A common stock were outstanding under the 2008 Stock Incentive Plan at a weighted-average exercise price of $56.74 per share, of which 312 shares were vested and exercisable at a weighted-average exercise price of $55.70 per share. Since April 30, 2018, we have granted additional options to purchase an aggregate of 106,500 shares of Class A common stock at an exercise price of $83.34 per share and restricted stock units with respect to 12,998 shares of Class A common stock.
Restricted Stock Units
As of April 30, 2018, 30,312 shares of Class B common stock and no shares of Class A common stock were issuable upon the vesting of outstanding restricted stock units, and no restricted stock units had vested. The vesting of all of these restricted stock units is subject, among other things, to the occurrence of a liquidity event, which includes the closing of this offering. If this offering had closed on April 30, 2018, 2,562 of these restricted stock units would have vested immediately, resulting in the issuance of an equal number of shares of our Class B common stock.
Registration Rights
Pursuant to our investors rights agreement, certain stockholders have the right, following the closing of this offering, to demand that we file a registration statement or request that their shares be included in a registration statement that we are otherwise filing. We refer to the shares held by holders having rights under this agreement as registrable securities. As of April 30, 2018, the holders of registrable securities, including shares issuable upon the conversion of all outstanding preferred stock, have rights under this agreement.
Demand Registration Rights
Pursuant to the investors rights agreement, until the earlier of three years after the date of the investor rights agreement or six months after the effective date of the registration statement for this offering, the holders of at least 50% of the registrable securities with demand registration rights can demand that we file up to two registration statements on Form S-1 registering at least 40% of the registrable securities then outstanding, or a lesser percent if the anticipated aggregate offering price, net of selling expenses, would exceed $15 million. As of April 30, 2018, the holders of registrable securities have demand registration rights. Under specified circumstances, we also have the right to defer filing of a requested registration statement for a period of not more than 30 days, which right may not be exercised more than once during any 12-month period. These registration rights are subject to additional conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under certain circumstances.
Form S-3 Registration Rights
Pursuant to the investors rights agreement, if we are eligible to file a registration statement on Form S-3, the holders of at least 20% of the registrable securities with demand registration rights have the right to demand that we file additional registration statements, including a shelf registration statement, for such holders on Form S-3, if the aggregate anticipated offering price is at least $5 million. These holders can demand up to two such registrations in any 12-month period.
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Piggyback Registration Rights
Pursuant to the investors rights agreement, if we propose to file a registration statement under the Securities Act, other than with respect to a registration related to employee benefit or similar plans, a registration on any form which does not include substantially the same information as would be required to be included in the registration statement of which this prospectus forms a part, or a registration in which the only common stock being registered is common stock issuable upon conversion of debt securities which are also being registered, the holders of all registrable securities are entitled to receive notice of the registration and to include their registrable securities in such registration. As of April 30, 2018, the holders of registrable securities will be entitled to notice of this registration and will be entitled to include their registrable securities in the registration statement of which this prospectus forms a part, but we anticipate that such right will be waived prior to consummation of this offering. The underwriters of any underwritten offering will have the right to limit the number of the number of registrable securities that may be included in the registration statement.
Expenses of Registration
We are required to pay all expenses relating to any demand, Form S-3 or piggyback registration, other than the underwriting discount, subject to certain limited exceptions. We will not pay for any expenses of any demand registration if the request is subsequently withdrawn by the holders of a majority of the shares requested to be included in such a registration statement, subject to limited exceptions.
Anti-Takeover Provisions
The provisions of Delaware law and of our restated certificate of incorporation and amended and restated bylaws to be effective on the closing of this offering may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, some of which will become effective only from and after the threshold date, may have the effect of discouraging takeover bids, coercive of otherwise. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203 prevents a publicly held Delaware corporation from engaging in a business combination with any interested stockholder for three years following the date that the person became an interested stockholder, unless the interested stockholder attained such status with the approval of our board of directors or unless the business combination is approved in a prescribed manner. A business combination includes, among other things, a merger or consolidation involving us and the interested stockholder and the sale of more than 10% of our assets. In general, an interested stockholder is any entity or person beneficially owning shares representing 15% or more of the voting power of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person.
Board of Directors
Our restated certificate of incorporation and our amended and restated bylaws, which will be effective upon the closing of this offering, provides that upon the closing of this offering until the threshold date, our directors may be removed with or without cause by the affirmative vote of the holders of a majority of the voting power of all shares that stockholders would be entitled to vote for the election of directors. From and after the threshold date, our directors may be removed by stockholders only for cause by the affirmative vote of the holders of shares representing a majority of the voting power of all shares that stockholders would be entitled to vote for the
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election of directors. Upon the closing of this offering until the threshold date, any vacancies in the board of directors may be filled by the affirmative vote of the holders of a majority of the voting power of all shares that stockholders would be entitled to vote for the election of directors. From and after the threshold date, any vacancies in the board of directors may be filled only by our board of directors.
These limitations on the removal of directors and filling of vacancies from and after the threshold date, along with the Link voting agreement, could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.
Supermajority Voting
The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporations certificate of incorporation or bylaws, unless a corporations certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our restated certificate of incorporation and our amended and restated bylaws, each of which will be effective upon the closing of this offering, may be amended or repealed by a majority vote of our board of directors or the affirmative vote of the holders of at least 66 2/3% of the votes that all our stockholders would be entitled to cast for the election of directors.
Stockholder Action; Special Meeting of Stockholders; Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our restated certificate of incorporation, which will be effective upon the closing of this offering, provides that, from and after the threshold date, any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. Our restated certificate of incorporation and our amended and restated bylaws also provide that, from and after the threshold date, except as otherwise required by law, special meetings of our stockholders can only be called by our board of directors. In addition, our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of candidates for election to our board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors, or by a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has delivered timely written notice in proper form to our secretary of the stockholders intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities. These provisions also could discourage a third party from making a tender offer for our capital stock, because even if it acquired a majority of our outstanding voting stock, it would be able to take action as a stockholder, such as electing new directors or approving a merger, only at a duly called stockholders meeting and not by written consent.
Authorized But Unissued Shares
The authorized but unissued shares of our Class A common stock, Class B common stock and preferred stock are available for future issuance without stockholder approval, subject to any limitations imposed by the listing rules of the New York Stock Exchange. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved capital stock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Choice of Forum
Our restated certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of
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Delaware does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of our company, (2) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee or stockholder of our company to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the General Corporation Law or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery, or (4) any action asserting a claim governed by the internal affairs doctrine. Our restated certificate of incorporation further provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
Corporate Opportunity
Our restated certificate of incorporation provides that, to the fullest extent permitted by law, we have, on behalf of ourselves, our subsidiaries and our and their respective stockholders, renounced any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity that may be presented to our directors or officers that are not our employees or any of their respective affiliates, partners, principals, directors, officers, members, managers, employees or other representatives, and that no such person has any duty to communicate or offer such business opportunity to us or any of our subsidiaries or shall be liable to us or any of our subsidiaries or any of our or its stockholders for breach of any duty, as a director or officer or otherwise, by reason of the fact that such person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to us or our subsidiaries, unless, in the case of any such person who is a director or officer of our company, such business opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer of our company.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A common stock will be .
New York Stock Exchange
We intend to apply to list our Class A common stock on the New York Stock Exchange under the symbol EVER.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no public market for the Class A common stock. Future sales of substantial amounts of Class A common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of the Class A common stock. Although we intend to apply to list our Class A common stock on the New York Stock Exchange, we cannot assure you that there will be an active public market for the Class A common stock.
Upon the closing of this offering, we will have outstanding an aggregate of shares of Class A common stock and shares of Class B common stock, assuming (1) the issuance of shares of Class A common stock offered in this offering and (2) the automatic conversion of all outstanding shares of preferred stock into an aggregate of shares of Class B common stock upon the closing of this offering. Of these shares, the shares of Class A common stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act, whose sales would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.
The shares of Class B common stock outstanding upon completion of this offering, and the shares of Class A common stock issued upon conversion of Class B common stock, will be restricted securities, as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below.
Subject to the lock-up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, these restricted securities will be available for sale in the public market as follows:
Date |
Number of Shares | |||
On the date of this prospectus |
||||
90 days after the date of this prospectus |
In addition, of the 343,841 shares of Class B common stock that were subject to stock options outstanding as of April 30, 2018, options to purchase 191,926 shares of Class B common stock were vested as of April 30, 2018, and the shares issued upon exercise will be eligible for public sale subject to the lock-up agreements and securities laws described below.
Each outstanding share of Class B common stock will convert automatically into one share of Class A common stock upon its public sale or other transfer, whether or not for value and whether voluntary or involuntary or by operation of law, except for certain exceptions and permitted transfers described in our restated certificate of incorporation. See Description of Capital StockClass A and Class B Common StockConversion.
Lock-Up Agreements
We, the selling stockholders and each of our directors and executive officers and holders of % of our outstanding capital stock have agreed that, without the prior written consent of J.P. Morgan Securities LLC, as representative for the several underwriters, we and they will not, subject to limited exceptions, during the period ending 180 days after the date of this prospectus:
| offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any other securities convertible into or exercisable or exchangeable for shares of our common stock; or |
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| enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock or such other securites. |
These agreements are subject to certain exceptions, as described in the section of this prospectus entitled Underwriting.
Upon the expiration of the applicable lock-up periods, substantially all of the shares subject to such lock-up restrictions will become eligible for sale, subject to the limitations discussed above.
Rule 144
Affiliate Resales of Restricted Securities
In general, beginning 90 days after the effective date of the registration statement for this offering, a person who is an affiliate of ours, or who was an affiliate at any time during the 90 days before a sale, who has beneficially owned shares of our capital stock for at least six months would be entitled to sell in brokers transactions or certain riskless principal transactions or to market makers, a number of shares within any three-month period that does not exceed the greater of:
| 1% of the total number of then-outstanding shares of the class of security sold, which will equal, immediately after this offering, approximately shares of Class A common stock; or |
| the average weekly trading volume in the class of security sold on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 with the SEC and the New York Stock Exchange concurrently with either the placing of a sale order with the broker or the execution directly with a market maker.
Non-Affiliate Resales of Restricted Securities
In general, beginning 90 days after the effective date of the registration statement for this offering, a person who is not an affiliate of ours at the time of sale, and has not been an affiliate at any time during the three months preceding a sale, and who has beneficially owned shares of our capital stock for at least six months but less than a year, is entitled to sell such shares subject only to the availability of current public information about us. If such person has held our shares for at least one year, such person can resell under Rule 144(b)(1) without regard to any Rule 144 restrictions, including the 90-day public company requirement and the current public information requirement.
Non-affiliate resales are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144.
Rule 701
In general, under Rule 701, any of an issuers employees, directors, officers, consultants or advisors who purchases shares from the issuer in connection with a compensatory stock or option plan or other written agreement before the effective date of a registration statement under the Securities Act is entitled to sell such shares 90 days after such effective date in reliance on Rule 144. An affiliate of the issuer can resell shares in reliance on Rule 144 without having to comply with the holding period requirement, and non-affiliates of the issuer can resell shares in reliance on Rule 144 without having to comply with the current public information and holding period requirements.
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The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after an issuer becomes subject to the reporting requirements of the Exchange Act.
Equity Plans
We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of capital stock issued or issuable under the 2008 Stock Incentive Plan and 2018 Equity Incentive Plan. We expect to file the registration statement covering shares offered pursuant to the 2008 Stock Incentive Plan and 2018 Equity Incentive Plan shortly after the date of this prospectus, permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act and the sale by affiliates in the public market, subject to compliance with the resale provisions of Rule 144, in each case subject to the lock-up agreements described above.
Registration Rights
Upon the closing of this offering, the holders of shares of Class B common stock will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration statement for this offering, except for shares purchased by affiliates. See Description of Capital StockRegistration Rights for additional information. Shares covered by a registration statement will be eligible for sale in the public market upon the expiration or release from the terms of the lock-up agreement.
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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK
The following is a discussion of material U.S. federal income and estate tax considerations relating to ownership and disposition of our Class A common stock by a non-U.S. holder. For purposes of this discussion, the term non-U.S. holder means a beneficial owner (other than a partnership or other pass-through entity) of our Class A common stock that is not, for U.S. federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; |
| an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
This discussion does not address the tax treatment of partnerships or other entities that are pass-through entities for U.S. federal income tax purposes or persons who hold their Class A common stock through partnerships or such other pass-through entities. A partner in a partnership or other pass-through entity that will hold our Class A common stock should consult his, her or its own tax advisor regarding the tax consequences of the ownership and disposition of our Class A common stock through a partnership or other pass-through entity, as applicable.
This discussion is based on current provisions of the Internal Revenue Code of 1986, or the Code, existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all as in effect as of the date of this prospectus and all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any change could alter the tax consequences to non-U.S. holders described in this prospectus. There can be no assurance that the Internal Revenue Service, or the IRS, will not challenge one or more of the tax consequences described in this prospectus.
We assume in this discussion that each non-U.S. holder holds shares of our Class A common stock as a capital asset (generally, property held for investment) for U.S. federal income tax purposes. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holders individual circumstances nor does it address any aspects of U.S. state, local or non-U.S. taxes, the alternative minimum tax, or the Medicare tax on net investment income. This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, such as:
| financial institutions; |
| brokers or dealers in securities; |
| tax-exempt organizations; |
| pension plans, including qualified foreign pension funds as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds; |
| persons deemed to sell our Class A common stock under the constructive sale provisions of the Code; |
| owners that hold our Class A common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment or who have elected to mark securities to market; |
| insurance companies; |
| controlled foreign corporations; |
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| passive foreign investment companies; |
| non-U.S. governments; and |
| certain U.S. expatriates. |
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT, AND IS NOT INTENDED TO BE, LEGAL OR TAX ADVICE. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING AND DISPOSING OF OUR CLASS A COMMON STOCK.
Distributions
As discussed under Dividend Policy above, we do not expect to make cash dividends to holders of our Class A common stock in the foreseeable future. If we make distributions in respect of our Class A common stock, those distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, subject to the tax treatment described in this section. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holders investment, up to the holders tax basis in the Class A common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under the heading Gain on Sale, Exchange or Other Taxable Disposition of Our Class A Common Stock. Any distributions will also be subject to the discussions below under the headings Information Reporting and Backup Withholding and FATCA.
Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holders country of residence.
Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States, and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder within the United States, are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements (generally including provision of a valid IRS Form W-8ECI (or applicable successor form) certifying that the dividends are effectively connected with the non-U.S. holders conduct of a trade or business within the United States). However, such U.S. effectively connected income, net of specified deductions and credits, is taxed in the hands of the non-U.S. holder at the same graduated U.S. federal income tax rates as would apply if such holder were a U.S. person (as defined in the Code). Any U.S. effectively connected income received by a non-U.S. holder that is classified as a corporation for U.S. federal income tax purposes may also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holders country of residence.
A non-U.S. holder of our Class A common stock who claims the benefit of an applicable income tax treaty between the United States and such holders country of residence generally will be required to provide a properly executed IRS Form W-8BEN or W-8BEN-E (or successor form) and satisfy applicable certification and other requirements. Non-U.S. holders are urged to consult their own tax advisors regarding their entitlement to benefits under a relevant income tax treaty and the specific methods available to them to satisfy these requirements.
A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.
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Gain on Sale, Exchange or Other Taxable Disposition of Our Class A Common Stock
Subject to the discussions below under the headings Information Reporting and Backup Withholding and FATCA, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon such non-U.S. holders sale, exchange or other disposition of our Class A common stock unless:
| the gain is effectively connected with the non-U.S. holders conduct of a trade or business in the United States, and, if an applicable income tax treaty so provides, the gain is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States; in these cases, the non-U.S. holder generally will be taxed on a net income basis at the graduated U.S. federal income tax rates applicable to U.S. persons, and, if the non-U.S. holder is a foreign corporation, the branch profits tax described above under the heading Distributions may also apply; |
| the non-U.S. holder is a non-resident alien present in the United States for 183 days or more in the taxable year of the disposition and certain other requirements are met, in which case the non-U.S. holder will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the United States and such holders country of residence) on the net gain derived from the disposition, which may be offset by certain U.S.-source capital losses of the non-U.S. holder, if any; or |
| we are or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holders holding period, if shorter) a U.S. real property holding corporation unless our Class A common stock is regularly traded on an established securities market and the non-U.S. holder held no more than 5% of our outstanding Class A common stock, directly or indirectly, during the shorter of the five-year period ending on the date of the disposition or the period that the non-U.S. holder held our Class A common stock. Generally, a corporation is a U.S. real property holding corporation if the fair market value of its U.S. real property interests (as defined in the Code and applicable regulations) equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Although there can be no assurance, we believe that we are not currently, and we do not anticipate becoming, a U.S. real property holding corporation for U.S. federal income tax purposes. |
U.S. Federal Estate Tax
Shares of our Class A common stock that are owned or treated as owned by an individual who is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of death are considered U.S. situs assets and will be included in the individuals gross estate for U.S. federal estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax or other treaty provides otherwise.
Information Reporting and Backup Withholding
We must report annually to the IRS and to each non-U.S. holder the gross amount of the distributions on our Class A common stock paid to such holder and the tax withheld, if any, with respect to such distributions. Non-U.S. holders generally will have to comply with specific certification procedures to establish that the holder is not a U.S. person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to dividends on our Class A common stock. Generally, a holder will comply with such procedures if it provides a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable Form W-8), or otherwise meets documentary evidence requirements for establishing that it is a non-U.S. holder, or otherwise establishes an exemption. Dividends paid to non-U.S. holders subject to withholding of U.S. federal income tax, as described above under the heading Distributions, will generally be exempt from U.S. backup withholding.
Information reporting and backup withholding generally will apply to the proceeds of a disposition of our Class A common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or
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non-U.S., unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.
Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holders U.S. federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS.
FATCA
Provisions of the Code commonly referred to as the Foreign Account Tax Compliance Act, or FATCA, generally impose a 30% withholding tax on dividends on, and gross proceeds from the sale or disposition of, our Class A common stock if paid to a foreign entity unless (1) if the foreign entity is a foreign financial institution, the foreign entity undertakes certain due diligence, reporting, withholding, and certification obligations, (2) if the foreign entity is not a foreign financial institution, the foreign entity identifies certain of its U.S. investors, or (3) the foreign entity is otherwise exempt under FATCA.
Withholding under FATCA generally (1) applies to payments of dividends on our Class A common stock and (2) will apply to payments of gross proceeds from a sale or other disposition of our Class A common stock made after December 31, 2018. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this section. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of the tax. Non-U.S. holders should consult their own tax advisors regarding the possible implications of FATCA on their investment in our Class A common stock.
The preceding discussion of material U.S. federal tax considerations is for informational purposes only. It is not legal or tax advice. Prospective investors should consult their own tax advisors regarding the particular U.S. federal, state, local, and non-U.S. tax consequences of purchasing, holding and disposing of our Class A common stock, including the consequences of any proposed changes in applicable laws.
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We and the selling stockholders are offering the shares of Class A common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as joint book-running managers of the offering and as representatives of the underwriters. We, the selling stockholders and the underwriters named below, have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of Class A common stock listed next to its name in the following table:
Name |
Number of
Shares |
|||
J.P. Morgan Securities LLC |
||||
Merrill Lynch, Pierce, Fenner &
Smith
|
||||
Canaccord Genuity LLC |
||||
JMP Securities LLC |
||||
Needham & Company LLC |
||||
Oppenheimer & Co. Inc. |
||||
Raymond James & Associates, Inc. |
||||
William Blair & Company, L.L.C. |
||||
Total |
||||
|
|
The underwriters are committed to purchase all the Class A common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the Class A common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares to the public, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.
The underwriters have an option to buy up to additional shares of Class A common stock from us and up to additional shares of Class A common stock from the selling stockholders to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of Class A common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
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The underwriting fee is equal to the public offering price per share of Class A common stock less the amount paid by the underwriters to us and the selling stockholders per share of Class A common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Per share |
Total without
option to purchase additional shares exercise |
Total with full
option to purchase additional shares exercise |
||||||||||
Shares sold by EverQuote |
$ | $ | $ | |||||||||
Shares sold by the selling stockholders |
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ .
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that, subject to certain exceptions, we will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers, in whole or part, any of the economic consequences of ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC for a period of 180 days after the date of this prospectus.
The selling stockholders, our directors and executive officers and certain of our significant stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers and stockholders in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.
We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
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We intend to apply to have our Class A common stock approved for listing/quotation on the New York Stock Exchange under the symbol EVER.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of Class A common stock in the open market for the purpose of preventing or retarding a decline in the market price of the Class A common stock while this offering is in progress. These stabilizing transactions may include making short sales of the Class A common stock, which involves the sale by the underwriters of a greater number of shares of Class A common stock than they are required to purchase in this offering, and purchasing shares of Class A common stock on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters option to purchase additional shares referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the Class A common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase Class A common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discounts and commissions received by them.
These activities may have the effect of raising or maintaining the market price of the Class A common stock or preventing or retarding a decline in the market price of the Class A common stock, and, as a result, the price of the Class A common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the New York Stock Exchange, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
| the information set forth in this prospectus and otherwise available to the representatives; |
| our prospects and the history and prospects for the industry in which we compete; |
| an assessment of our management; |
| our prospects for future earnings; |
| the general condition of the securities markets at the time of this offering; |
| the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for our Class A common stock, or that the shares will trade in the public market at or above the initial public offering price.
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Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, no offer of shares may be made to the public in that Relevant Member State other than:
A. | to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
B. | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the underwriters; or |
C. | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares shall require the company or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive and each person who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters and the company that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive.
In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
For the purposes of this provision, the expression an offer of shares to the public in relation to any shares in any Relevant Member State means the communication in any form and by means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.
Notice to Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully
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communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares in the United Kingdom.
Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.
Notice to Prospective Investors in Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre (DIFC)
This document relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority (DFSA). This document is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers.
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The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for this document. The securities to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this document you should consult an authorized financial advisor.
In relation to its use in the DIFC, this document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.
Notice to Prospective Investors in the United Arab Emirates
The shares have not been, and are not being, publicly offered, sold, promoted or advertised in the United Arab Emirates (including the Dubai International Financial Centre) other than in compliance with the laws of the United Arab Emirates (and the Dubai International Financial Centre) governing the issue, offering and sale of securities. Further, this prospectus does not constitute a public offer of securities in the United Arab Emirates (including the Dubai International Financial Centre) and is not intended to be a public offer. This prospectus has not been approved by or filed with the Central Bank of the United Arab Emirates, the Securities and Commodities Authority or the Dubai Financial Services Authority.
Notice to Prospective Investors in Australia
This prospectus:
| does not constitute a product disclosure document or a prospectus under Chapter 6D.2 of the Corporations Act 2001 (Cth) (the Corporations Act); |
| has not been, and will not be, lodged with the Australian Securities and Investments Commission (ASIC), as a disclosure document for the purposes of the Corporations Act and does not purport to include the information required of a disclosure document under Chapter 6D.2 of the Corporations Act; |
| does not constitute or involve a recommendation to acquire, an offer or invitation for issue or sale, an offer or invitation to arrange the issue or sale, or an issue or sale, of interests to a retail client (as defined in section 761G of the Corporations Act and applicable regulations) in Australia; and |
| may only be provided in Australia to select investors who are able to demonstrate that they fall within one or more of the categories of investors, or Exempt Investors, available under section 708 of the Corporations Act. |
The shares may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for or buy the shares may be issued, and no draft or definitive offering memorandum, advertisement or other offering material relating to any shares may be distributed in Australia, except where disclosure to investors is not required under Chapter 6D of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the shares, you represent and warrant to us that you are an Exempt Investor.
As any offer of shares under this document will be made without disclosure in Australia under Chapter 6D.2 of the Corporations Act, the offer of those securities for resale in Australia within 12 months may, under section 707 of the Corporations Act, require disclosure to investors under Chapter 6D.2 if none of the exemptions in section 708 applies to that resale. By applying for the shares you undertake to us that you will not, for a period of 12 months from the date of issue of the shares, offer, transfer, assign or otherwise alienate those securities to investors in Australia except in circumstances where disclosure to investors is not required under Chapter 6D.2 of the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.
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Notice to Prospective Investors in Japan
The shares have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Act. Accordingly, none of the shares nor any interest therein may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan in effect at the relevant time.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a) | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(b) | where no consideration is or will be given for the transfer; |
(c) | where the transfer is by operation of law; |
144
(d) | as specified in Section 276(7) of the SFA; or |
(e) | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
145
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, is based on our own internal estimates and research, industry and general publications and research, and surveys and studies conducted by third parties. Our management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions, which we believe to be reasonable, made by us based on such data, as well as our knowledge of our industry and products. This prospectus contains estimates and other statistical data, including those relating to our industry and the market in which we operate, that we have obtained or derived from industry publications and reports. These industry publications and reports are the property of their respective owners and are protected by applicable copyright law and generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Projections, assumptions and estimates of our future performance and the future performance of the markets or industry in which we operate are subject to uncertainty and risk due to a variety of factors, including those described in Risk Factors and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties or us and contained in this prospectus.
The validity of the shares of Class A common stock offered hereby will be passed upon for us by Wilmer Cutler Pickering Hale and Dorr LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP.
The financial statements as of December 31, 2016 and 2017 and for the years then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the shares of Class A common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the Class A common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement.
You may read and copy the registration statement for this offering at the SECs public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. You can request copies of the registration statement by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SECs public reference room. In addition, the SEC maintains an internet website, which is located at www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement for this offering at the SECs internet website.
146
Upon closing of this offering, we will be subject to the informational and periodic reporting requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements certified by an independent registered public accounting firm. We also maintain a website at www.everquote.com . The information contained in, or which can be accessed through, our website does not constitute a part of this prospectus.
147
Audited Financial Statements
Page | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit |
F-5 | |||
F-6 | ||||
F-7 |
Unaudited Condensed Financial Statements
Page | ||||
F-32 | ||||
F-33 | ||||
Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit |
F-34 | |||
F-35 | ||||
F-36 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of EverQuote, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of EverQuote, Inc. as of December 31, 2017 and 2016, and the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders deficit, and cash flows for the years then ended, including the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2018
We have served as the Companys auditor since 2014.
F-2
EVERQUOTE, INC.
(In thousands, except share and per share amounts)
December 31, | ||||||||
2016 | 2017 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 12,400 | $ | 2,363 | ||||
Accounts receivable |
12,216 | 14,694 | ||||||
Prepaid expenses and other current assets |
585 | 593 | ||||||
|
|
|
|
|||||
Total current assets |
25,201 | 17,650 | ||||||
Property and equipment, net |
2,362 | 2,129 | ||||||
Other assets |
687 | 740 | ||||||
|
|
|
|
|||||
Total assets |
$ | 28,250 | $ | 20,519 | ||||
|
|
|
|
|||||
Liabilities, Redeemable Convertible Preferred Stock and Stockholders Deficit |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 10,422 | $ | 11,894 | ||||
Accrued expenses and other current liabilities |
1,351 | 1,775 | ||||||
Deferred revenue |
815 | 986 | ||||||
Current portion of long-term debt, net of discount |
1,466 | 361 | ||||||
|
|
|
|
|||||
Total current liabilities |
14,054 | 15,016 | ||||||
Deferred rent, net of current portion |
287 | 860 | ||||||
Long-term debt, net of current portion |
2,625 | 4,250 | ||||||
|
|
|
|
|||||
Total liabilities |
16,966 | 20,126 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 10) |
||||||||
Redeemable convertible preferred stock (Series A, B and B-1), $0.001 par value; 1,867,886 shares authorized at December 31, 2016 and 2017; 1,672,451 and 1,574,508 shares issued and outstanding at December 31, 2016 and 2017, respectively; aggregate liquidation preference of $36,844 at December 31, 2017 |
36,942 | 50,937 | ||||||
|
|
|
|
|||||
Stockholders deficit: |
||||||||
Class A common stock, $0.001 par value; no shares and 3,750,595 shares authorized at December 31, 2016 and 2017, respectively; no shares and 3,000 shares issued and outstanding at December 31, 2016 and 2017, respectively |
| | ||||||
Class B common stock, $0.001 par value; 4,000,000 and 3,445,762 shares authorized at December 31, 2016 and 2017, respectively; 1,106,122 and 1,083,874 shares issued and outstanding at December 31, 2016 and 2017, respectively |
1 | 1 | ||||||
Additional paid-in capital |
5,509 | 774 | ||||||
Accumulated deficit |
(31,168 | ) | (51,319 | ) | ||||
|
|
|
|
|||||
Total stockholders deficit |
(25,658 | ) | (50,544 | ) | ||||
|
|
|
|
|||||
Total liabilities, redeemable convertible preferred stock and stockholders deficit |
$ | 28,250 | $ | 20,519 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-3
EVERQUOTE, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
Revenue |
$ | 122,778 | $ | 126,242 | ||||
|
|
|
|
|||||
Cost and operating expenses: |
||||||||
Cost of revenue |
5,888 | 7,745 | ||||||
Sales and marketing |
105,820 | 109,473 | ||||||
Research and development |
6,585 | 9,194 | ||||||
General and administrative |
4,894 | 4,519 | ||||||
|
|
|
|
|||||
Total cost and operating expenses |
123,187 | 130,931 | ||||||
|
|
|
|
|||||
Loss from operations |
(409 | ) | (4,689 | ) | ||||
Interest expense |
(506 | ) | (382 | ) | ||||
|
|
|
|
|||||
Loss before income taxes |
(915 | ) | (5,071 | ) | ||||
Provision for income taxes |
18 | | ||||||
|
|
|
|
|||||
Net loss and comprehensive loss |
(933 | ) | (5,071 | ) | ||||
Accretion of redeemable convertible preferred stock to redemption value |
(656 | ) | (14,093 | ) | ||||
|
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|
|
|||||
Net loss attributable to common stockholders |
$ | (1,589 | ) | $ | (19,164 | ) | ||
|
|
|
|
|||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | (1.30 | ) | $ | (17.47 | ) | ||
|
|
|
|
|||||
Weighted average common shares outstanding, basic and diluted |
1,220,734 | 1,096,735 | ||||||
|
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|
|
|||||
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) |
$ | |||||||
|
|
|||||||
Pro forma weighted average common shares outstanding, basic and diluted (unaudited) |
||||||||
|
|
The accompanying notes are an integral part of these financial statements.
F-4
EVERQUOTE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS DEFICIT
(in thousands, except share amounts)
Series A, B and
B-1
Redeemable Convertible Preferred Stock |
Class A
Common Stock |
Class B
Common Stock |
Additional
Paid-in Capital |
Treasury Stock |
Accumulated
Deficit |
Total
Stockholders Deficit |
||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balances at December 31, 2015 |
1,265,100 | $ | 981 | | $ | | 1,188,953 | $ | 1 | $ | 4,852 | | $ | | $ | (12,292 | ) | $ | (7,439 | ) | ||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options |
| | | | 73,386 | | 577 | | | | 577 | |||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | 1,956 | | | | 1,956 | |||||||||||||||||||||||||||||||||
Conversion of Series A redeemable convertible preferred stock to common stock |
(195,435 | ) | (195 | ) | | | 195,435 | | 195 | | | | 195 | |||||||||||||||||||||||||||||||
Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $373 |
602,786 | 35,500 | | | | | | | | | | |||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value |
| 656 | | | | | (656 | ) | | | | (656 | ) | |||||||||||||||||||||||||||||||
Repurchase of common stock |
| | | | (351,652 | ) | | | 351,652 | (19,358 | ) | | (19,358 | ) | ||||||||||||||||||||||||||||||
Retirement of treasury stock |
| | | | | | (1,415 | ) | (351,652 | ) | 19,358 | (17,943 | ) | | ||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (933 | ) | (933 | ) | |||||||||||||||||||||||||||||||
|
|
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|
|
|
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|
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|
|
|||||||||||||||||||||||
Balances at December 31, 2016 |
1,672,451 | 36,942 | | | 1,106,122 | 1 | 5,509 | | | (31,168 | ) | (25,658 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options |
| | | | 50,461 | | 1,549 | | | | 1,549 | |||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | 1,860 | | | | 1,860 | |||||||||||||||||||||||||||||||||
Conversion of Series A redeemable convertible preferred stock to common stock |
(97,943 | ) | (98 | ) | | | 97,943 | | 98 | | | | 98 | |||||||||||||||||||||||||||||||
Transfer of Class B common stock to Class A common stock |
| | 3,000 | | (3,000 | ) | | | | | | | ||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value |
| 14,093 | | | | | (7,759 | ) | | | (6,334 | ) | (14,093 | ) | ||||||||||||||||||||||||||||||
Repurchase of common stock |
| | | | (167,652 | ) | | | 167,652 | (9,229 | ) | | (9,229 | ) | ||||||||||||||||||||||||||||||
Retirement of treasury stock |
| | | | | | (483 | ) | (167,652 | ) | 9,229 | (8,746 | ) | | ||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (5,071 | ) | (5,071 | ) | |||||||||||||||||||||||||||||||
|
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|
|||||||||||||||||||||||
Balances at December 31, 2017 |
1,574,508 | $ | 50,937 | 3,000 | $ | | 1,083,874 | $ | 1 | $ | 774 | | $ | | $ | (51,319 | ) | $ | (50,544 | ) | ||||||||||||||||||||||||
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|
The accompanying notes are an integral part of these financial statements.
F-5
EVERQUOTE, INC.
(in thousands)
Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (933 | ) | $ | (5,071 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
1,437 | 1,360 | ||||||
Stock-based compensation expense |
1,956 | 1,860 | ||||||
Noncash interest expense |
126 | 20 | ||||||
Deferred rent |
(28 | ) | 528 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(471 | ) | (2,478 | ) | ||||
Prepaid expenses and other current assets |
11 | (8 | ) | |||||
Other assets |
(486 | ) | (75 | ) | ||||
Accounts payable |
3,597 | 1,552 | ||||||
Accrued expenses and other current liabilities |
196 | 469 | ||||||
Deferred revenue |
80 | 171 | ||||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
5,485 | (1,672 | ) | |||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Acquisition of property and equipment, including costs capitalized for development of internal-use software |
(1,083 | ) | (1,185 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(1,083 | ) | (1,185 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of stock options |
577 | 1,549 | ||||||
Proceeds from issuance of Series B redeemable convertible preferred stock, net of issuance costs of $373 |
35,500 | | ||||||
Repurchase of common stock |
(19,358 | ) | (9,229 | ) | ||||
Proceeds from borrowings on line of credit |
17,465 | 20,300 | ||||||
Repayments of borrowings on line of credit |
(23,465 | ) | (18,300 | ) | ||||
Proceeds from borrowing on term loan |
4,500 | | ||||||
Repayments of term loan |
(3,264 | ) | (1,500 | ) | ||||
Repayment of related party note |
(5,144 | ) | | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
6,811 | (7,180 | ) | |||||
|
|
|
|
|||||
Net increase (decrease) in cash |
11,213 | (10,037 | ) | |||||
Cash at beginning of period |
1,187 | 12,400 | ||||||
|
|
|
|
|||||
Cash at end of period |
$ | 12,400 | $ | 2,363 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 342 | $ | 352 | ||||
Supplemental disclosure of noncash investing and financing information: |
||||||||
Acquisition of property and equipment included in accounts payable |
$ | 80 | $ | | ||||
Conversion of Series A redeemable convertible preferred stock to common stock |
$ | 195 | $ | 98 | ||||
Conversion of Series B redeemable convertible preferred stock to Series B-1 redeemable convertible preferred stock |
$ | | $ | 7,900 | ||||
Retirement of treasury stock |
$ | 19,358 | $ | 9,229 | ||||
Accretion of redeemable convertible preferred stock to redemption value |
$ | 656 | $ | 14,093 |
The accompanying notes are an integral part of these financial statements.
F-6
EVERQUOTE, INC.
1. Nature of the Business and Basis of Presentation
EverQuote, Inc. (the Company) was incorporated in the state of Delaware in 2008. Through its internet websites, the Company operates an online marketplace for consumers shopping for auto, home and life insurance quotes. The Company generates revenue by selling consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States.
The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, protection of proprietary technology, customer concentration, patent litigation, the need to obtain additional financing to support growth and dependence on third parties and key individuals.
The accompanying financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has incurred recurring losses, including net losses of $0.9 million for the year ended December 31, 2016 and $5.1 million for the year ended December 31, 2017. As of December 31, 2017, the Company had an accumulated deficit of $51.3 million. Through December 31, 2017, the Company has primarily funded its operations through issuances of shares of redeemable convertible preferred stock and common stock, debt, including a revolving line of credit and a term loan with Western Alliance Bank, and cash flows from operations. At December 31, 2017, in connection with the revolving line of credit and the term loan, the Company was subject to certain borrowing covenants, including a requirement to maintain a minimum asset coverage ratio of 1.35 to 1, calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit and the term loan. In the event of a default, which includes the occurrence of circumstances that could reasonably be expected to have a material adverse effect on the Company, the bank may declare all borrowings immediately due and payable resulting in the Company immediately needing additional funds. In March 2018, pursuant to the Loan and Security Modification Agreement, the revolving line of credit was increased from $6.0 million to $11.0 million and the minimum asset coverage ratio was changed to 1.5 to 1 (See Notes 5 and 14).
The Company expects that existing cash together with liquidity available from its revolving line of credit will be sufficient to fund the Companys operating expenses and capital expenditure requirements through at least 12 months from the issuance date of the financial statements. If the Company does not achieve its revenue goals as planned or if the debt becomes immediately due and payable, the Company believes that it can reduce its operating costs, pay down its outstanding debt and achieve positive cash flow from operations. If the Company needs additional funds and is unable to obtain funding on a timely basis, the Company may need to significantly curtail its operations in an effort to provide sufficient funds to continue its operations, which could adversely affect its business prospects.
The Company is seeking to complete an initial public offering (IPO) of its Class A common stock. Upon the completion of a qualified public offering on specified terms, the Companys outstanding redeemable convertible preferred stock will automatically convert into shares of Class B common stock (See Note 6). In the event the Company does not complete an IPO or does not achieve its revenue goals, the Company may seek additional funding through private equity financings or additional debt financings. The Company may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Companys stockholders.
The Companys financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP).
F-7
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition, the expensing and capitalization of website and software development costs, the valuation of common and preferred stock, and the valuation of stock-based awards and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimate are recorded in periods in which they become known. Actual results may differ from those estimates or assumptions.
Unaudited Pro Forma Information
In the accompanying statements of operations and comprehensive loss, the unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2017 has been prepared to give effect, upon the closing of a qualified IPO, to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock, after giving effect to the anti-dilution provision related to the Series B and Series B-1 redeemable convertible preferred stock as described in Note 6, as if the proposed IPO had occurred on the later of January 1, 2017 or the issuance date of the redeemable convertible preferred stock.
Restricted Cash
As of December 31, 2016 and 2017, restricted cash consisted of $0.3 million deposited in a separate restricted bank account as a security deposit for the Companys corporate credit cards. Restricted cash accounts are classified within other assets.
Concentrations of Credit Risk and of Significant Customers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company maintains its cash at two accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company sells its consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. For the year ended December 31, 2016, one customer represented 23% of total revenue. For the year ended December 31, 2017, one customer represented 20% of total revenue. As of December 31, 2016, two customers accounted for 19% and 12% of the accounts receivable balance. As of December 31, 2017, four customers accounted for 12%, 11%, 11% and 11% of the accounts receivable balance.
F-8
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
Deferred Offering Costs
The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive loss. The Company did not record any deferred offering costs as of December 31, 2016 and 2017.
Deferred Financing Costs
The Company capitalizes lender, legal and other third-party fees that are directly associated with obtaining access to capital under credit facilities. Deferred financing costs incurred in connection with obtaining access to capital are recorded in prepaid expenses and other current assets and are amortized over the availability period or term of the credit facility. Deferred financing costs related to a recognized debt liability are recorded as a direct reduction of the carrying amount of the debt liability and amortized to interest expense on an effective interest basis over the repayment term.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows:
Estimated Useful Life | ||
Computer equipment |
3 years | |
Software |
3 years | |
Furniture and fixtures |
5 years | |
Leasehold improvements |
Shorter of lease term or
estimated useful life of 15 years |
Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations on the statements of operations and comprehensive loss. Expenditures for repairs and maintenance are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its
F-9
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the years ended December 31, 2016 or 2017.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| Level 1Quoted prices in active markets for identical assets or liabilities. |
| Level 2Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| Level 3Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The carrying values of the Companys accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. The fair value of long-term debt related to the Companys revolving line of credit and term loan approximates its carrying value due to its variable interest rate, which approximates a market interest rate.
Classification and Accretion of Redeemable Convertible Preferred Stock
The Company has classified redeemable convertible preferred stock outside of stockholders equity (deficit) because the shares contain certain redemption features that are not solely within the control of the Company. Costs incurred in connection with the issuance of each series of redeemable convertible preferred stock are recorded as a reduction of gross proceeds from issuance. The Company recognizes changes in the redemption values of its outstanding redeemable convertible preferred stock immediately as they occur and adjusts the carrying value of the redeemable convertible preferred stock to equal the redemption value at the end of each reporting period as if the end of each reporting period were the redemption date. Adjustments to the carrying values of the redeemable convertible preferred stock at each reporting date result in an increase or decrease to net income (loss) attributable to common stockholders.
Segment Information
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company operates an online marketplace for consumers shopping for auto, home and life insurance quotes. All of the Companys tangible assets are held in the United States.
Revenue Recognition
The Company derives its revenue by selling consumer referrals to its insurance provider customers, including insurance carriers and agents. The Company recognizes revenue in accordance with Accounting
F-10
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
Standards Codification (ASC) Topic 605 Revenue Recognition (ASC 605). Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sellers price to the buyer is fixed or determinable and collectability is reasonably assured. The Company recognizes revenue from the sale of consumer referrals upon delivery of the referral. The Company records revenue from the sales of consumer referrals net of credits or other applicable allowances in the same period in which the related sales are recorded, based on the underlying contract terms.
Amounts received prior to satisfying the revenue recognition criteria listed above are recorded as deferred revenue in the accompanying balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue.
Research and Development
Research and development expenses consist primarily of personnel-related expenses (wages, fringe benefit costs and stock-based compensation expense) for product management, data analytics and software development. Research and development costs are expensed as incurred, except for certain costs which are capitalized in connection with the development of the Companys website and internal-use software.
Costs incurred in the preliminary and post-implementation stages of development are expensed as incurred. Once an application has reached the development stage, internal costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing performed to ensure the product is ready for its intended use. The Company also capitalizes costs related to specific upgrades and enhancements of its website and internal-use software when it is probable that the expenditures will result in additional functionality. Maintenance and training costs are expensed as incurred. Capitalized software costs are recorded as part of property and equipment and are amortized on a straight-line basis over an estimated useful life of three years.
Advertising Expense
Advertising expense consists of variable costs that are related to attracting consumers to the Companys marketplace, increasing downloads of its social safe-driving mobile app, EverDrive, and promoting its marketplace to insurance carriers and agents. The Company expenses advertising costs as incurred and such costs are included in sales and marketing expense in the accompanying statements of operations and comprehensive loss. During the years ended December 31, 2016 and 2017, advertising expense totaled $89.2 million and $90.5 million, respectively.
Accounts Receivable
The Company provides credit to customers in the ordinary course of business and believes its credit policies are prudent and reflect industry practices and business risk. Management reviews accounts receivable on a periodic basis and reserves for receivables in the Companys allowance for doubtful accounts on a specific identification basis when they are determined to be uncollectible. After the Company has exhausted all collection efforts, the outstanding receivable is written off against the allowance. The Company had no allowance for doubtful accounts as of December 31, 2016 and 2017, as all amounts were collectible.
Stock-Based Compensation
The Company measures all stock-based awards granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model for options and the fair value of the
F-11
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
Companys common stock for restricted stock units. Compensation expense of those awards is recognized, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The straight-line method of expense recognition is applied to all awards with service-only conditions, while the graded vesting method is applied to all grants with both service and performance conditions. The Company measures the fair value of stock-based awards granted to non-employees on the date at which the related service is complete, generally the vesting date. Compensation expense is recognized over the period during which services are rendered by such non-employee consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of its common stock and updated assumption inputs in the Black-Scholes option-pricing model.
The Company classifies stock-based compensation expense in its statements of operations and comprehensive loss in the same manner in which the award recipients payroll costs are classified or in which the award recipients service payments are classified.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders equity (deficit) that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2016 and 2017, there was no difference between net loss and comprehensive loss.
Net Income (Loss) per Share
The Company follows the two-class method when computing net income (loss) per share, as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares.
The Company has two classes of common stock outstanding as of December 31, 2017: Class A common stock and Class B common stock. As more fully described in Note 7, the rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. The Company allocates undistributed earnings attributable to common stock between the common stock classes on a one-to-one basis when computing net income (loss) per share. As a result, basic and diluted net income (loss) per share of Class A common stock and share of Class B common stock are equivalent.
The Companys redeemable convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such
F-12
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2016 and 2017.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Companys tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. The Companys policy is to record interest and penalties related to income taxes as part of the tax provision.
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which requires that debt issuance costs related to a debt liability be presented in the balance sheet as a direct reduction in the carrying amount of that debt liability. The amendments in ASU 2015-03 are effective for the annual periods ending after December 15, 2015. The Company adopted the standard retrospectively to all periods presented on the required effective date of January 1, 2016, and its adoption had no impact on the Companys financial position, results of operations or cash flows.
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 involves several aspects of the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross share compensation expense with actual forfeitures recognized as they occur and certain classifications on the statement of cash flows. Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively. The Company early adopted ASU 2016-09 as of January 1, 2017 and has elected to continue to apply an estimated forfeiture rate to share-based compensation as opposed to account for forfeitures as they occur. The adoption of ASU 2016-09 had no net impact on the Companys financial position, results of operations or cash flows.
F-13
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09) and has since issued several additional amendments thereto, collectively referred to herein as ASC 606. ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new standards require entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, ASC 606 provides guidance on accounting for certain revenue related costs including costs associated with obtaining and fulfilling a contract. ASC 606 may be applied using either a full retrospective approach, under which all years included in the financial statements will be presented under the revised guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the entity at the date of adoption. For public entities, the guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual periods beginning after December 15, 2018. The Company is currently planning to adopt ASC 606 on January 1, 2019, in accordance with the non-public company requirements. The Company is currently evaluating the method of adoption and the potential impact to the Companys financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230) (ASU 2016-15), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public entities, the standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the standard is effective for annual periods beginning after December 15, 2018. Early adoption is permitted for all entities. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact that the adoption of ASU 2016-15 will have on its financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) (ASU 2016-18), which requires that amounts generally described as restricted cash and restricted cash
F-14
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. For public entities, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that the adoption of ASU 2016-18 will have on its financial statements.
In May 2017, the FASB issued ASU No. 2017-09, CompensationStock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. For public and non-public entities, the standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The Company is currently evaluating the impact that the adoption of ASU 2017-09 will have on its financial statements. The Company does not expect that the adoption of ASU 2017-09 will have a material impact on its financial position, results of operations or cash flows
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (ASU 2017-11) . Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. For public entities, ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, ASU 2017-11 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its financial statements.
F-15
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
3. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
December 31, | ||||||||
2016 | 2017 | |||||||
Computer equipment |
$ | 1,694 | $ | 1,917 | ||||
Software |
3,528 | 4,238 | ||||||
Furniture and fixtures |
674 | 791 | ||||||
Leasehold improvements |
411 | 466 | ||||||
|
|
|
|
|||||
6,307 | 7,412 | |||||||
Less: Accumulated depreciation and amortization |
(3,945 | ) | (5,283 | ) | ||||
|
|
|
|
|||||
$ | 2,362 | $ | 2,129 | |||||
|
|
|
|
Depreciation and amortization expense was $1.4 million and $1.4 million for the years ended December 31, 2016 and 2017, respectively.
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
December 31, | ||||||||
2016 | 2017 | |||||||
Accrued advertising expenses |
$ | 830 | $ | 721 | ||||
Accrued employee compensation and benefits |
257 | 433 | ||||||
Accrued professional fees |
130 | 154 | ||||||
Deferred rent |
45 | | ||||||
Other current liabilities |
89 | 467 | ||||||
|
|
|
|
|||||
$ | 1,351 | $ | 1,775 | |||||
|
|
|
|
5. Loan and Security Agreement
In August 2014, the Company entered into a Loan and Security Agreement with Western Alliance Bank that included a revolving line of credit of up to $6.0 million and a term loan of $4.0 million. Borrowings under the revolving line of credit could not exceed 80% of eligible accounts receivable balances. The revolving line of credit bore interest at an annual rate of one-half percent (0.5%) above the greater of 3.25% or the prime rate and matured on August 11, 2016. The term loan was repayable beginning on March 11, 2015 in 36 equal monthly installments through February 2018. The term loan bore interest at an annual rate of 2.0% above the greater of 3.25% or the prime rate. Borrowings under the Loan and Security Agreement were collateralized by substantially all of the Companys assets and property. The Loan and Security Agreement included certain covenants including minimum financial performance to plan metrics.
In August 2016, the Company amended the Loan and Security Agreement to extend the maturity date of the revolving line of credit to August 2018 and to provide a $4.5 million term loan upon full prepayment of the outstanding balance of the existing $4.0 million term loan. Borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances and bear interest at an annual rate of one-half percent (0.5%) above the greater of 3.5% or the prime rate. The interest rate for the revolving line of credit was 4.25%
F-16
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
and 5.0% as of December 31, 2016 and 2017, respectively. The new term loan is repayable in 36 equal monthly installments through August 2019 and accrues interest at an annual rate of 2.0% above the greater of 3.5% or the prime rate. The interest rate for the new term loan was 5.75% and 6.5% as of December 31, 2016 and 2017, respectively. Borrowings under the amended Loan and Security Agreement are collateralized by substantially all of the Companys assets and property. Under the amended Loan and Security Agreement, the Company has agreed to affirmative and negative covenants to which it will remain subject until maturity. These covenants include limitations on the Companys ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. The amended Loan and Security Agreement requires the Company to maintain two financial covenants: a minimum asset coverage ratio of 1.35 to 1 and an actual-to-plan performance metric of at least 65%. Events of default under the amended Loan and Security Agreement include failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to the Company.
As of December 31, 2017, the Company was not in compliance with one of its financial performance covenants. However, the Company received a waiver of noncompliance from the lender related to the covenant default. There can be no guarantee that covenants will be met or waivers will be obtained in the future.
As of December 31, 2016, the Company had no outstanding amount drawn on the revolving line of credit and $4.1 million outstanding on the term loan, of which $1.5 million was classified within current portion of long-term debt, net of discount, and $2.6 million was classified within long-term debt, net of current portion.
As of December 31, 2017, the Company had $2.0 million outstanding on the revolving line of credit, of which the full amount was classified within long-term debt, net of current portion, and $2.6 million outstanding on the term loan, of which $0.4 million was classified within current portion of long-term debt, net of discount, and $2.2 million was classified within long-term debt, net of current portion.
For the years ended December 31, 2016 and 2017, the weighted average effective interest rate was 4.81% and 5.61%, respectively.
As of December 31, 2017, the annual principal repayment requirements for the outstanding balances under the amended Loan and Security Agreement were as follows (in thousands):
Year Ending December 31, |
||||
2018 |
$ | 3,500 | ||
2019 |
1,125 | |||
|
|
|||
$ | 4,625 | |||
|
|
In connection with the refinancing of the outstanding borrowings under the amended Loan and Security Agreement, the Company executed the Loan and Security Modification Agreement (the 2018 Loan Modification) on March 16, 2018 (see Note 14). Due to the modification of repayment provisions under the 2018 Loan Modification, the Company classified $4.3 million of debt outstanding as of December 31, 2017 as long-term debt, net of current portion. Principal amounts totaling $0.4 million paid in the first quarter of 2018 prior to entering into the 2018 Loan Modification were classified as current portion of long-term debt, net of discount as of December 31, 2017.
6. Redeemable Convertible Preferred Stock
The Company has issued Series A redeemable convertible preferred stock (the Series A Preferred Stock), Series B redeemable convertible preferred stock (the Series B Preferred Stock) and Series B-1 redeemable
F-17
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
convertible preferred stock (the Series B-1 Preferred Stock). The Series A Preferred Stock, the Series B Preferred Stock and the Series B-1 Preferred Stock are collectively referred to as the Preferred Stock.
Prior to the issuance of the Series B Preferred Stock in 2016, there were no redemption rights associated with the Series A Preferred Stock. Pursuant to the Companys amended and restated Certificate of Incorporation, dated June 30, 2016, both Series A Preferred Stock and Series B Preferred Stock contain redemption rights. In 2016, the Company issued 602,786 shares of Series B Preferred Stock at a price of $59.51 per share for proceeds of $35.5 million, net of issuance costs of $0.4 million. In April 2017, the Company exchanged 132,749 shares of Series B Preferred Stock for an equal number of shares of Series B-1 Preferred Stock. No additional consideration was paid or received by the Company in connection with this exchange. The shares of Series B-1 Preferred Stock have all the same rights and preferences as the Series B Preferred Stock, with the exception of the Series B-1 Preferred Stock liquidation preference, as described below.
In July 2016, holders of 32,035 shares of Series A Preferred Stock converted their shares to 32,035 shares of common stock. In October 2016, holders of 163,400 shares of Series A Preferred Stock converted their shares to 163,400 shares of common stock. In February 2017, holders of 97,943 shares of Series A Preferred Stock converted their shares to 97,943 shares of common stock. No additional consideration was paid or received by the Company in connection with these conversions.
Upon issuance of each class of Preferred Stock, the Company assessed the embedded conversion and liquidation features of the securities and determined that such features did not require the Company to separately account for these features. The Company also concluded that no beneficial conversion feature existed upon the issuance date of each class of Preferred Stock.
As of each balance sheet date, the Preferred Stock consisted of the following (in thousands, except share amounts):
As of December 31, 2016 | ||||||||||||||||||||
Preferred Stock
Authorized |
Preferred Stock
Issued and Outstanding |
Carrying Value |
Liquidation
Preference |
Common Stock
Issuable Upon Conversion |
||||||||||||||||
Series A Preferred Stock |
1,265,100 | 1,069,665 | $ | 1,070 | $ | 1,070 | 1,069,665 | |||||||||||||
Series B Preferred Stock |
602,786 | 602,786 | 35,872 | 35,872 | 602,786 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,867,886 | 1,672,451 | $ | 36,942 | $ | 36,942 | 1,672,451 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2017 | ||||||||||||||||||||
Preferred Stock
Authorized |
Preferred Stock
Issued and Outstanding |
Carrying Value |
Liquidation
Preference |
Common Stock
Issuable Upon Conversion |
||||||||||||||||
Series A Preferred Stock |
1,265,100 | 971,722 | $ | 972 | $ | 972 | 971,722 | |||||||||||||
Series B Preferred Stock |
470,037 | 470,037 | 38,961 | 27,972 | 470,037 | |||||||||||||||
Series B-1 Preferred Stock |
132,749 | 132,749 | 11,004 | 7,900 | 132,749 | |||||||||||||||
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1,867,886 | 1,574,508 | $ | 50,937 | $ | 36,844 | 1,574,508 | ||||||||||||||
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The holders of the Preferred Stock have the following rights and preferences:
Voting
The holders of Preferred Stock are entitled to vote, together with the holders of voting common stock, on all matters submitted to stockholders for a vote. Each holder of Preferred Stock is entitled to ten votes for each
F-18
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
whole share of Class B common stock into which the shares of Preferred Stock held by such holder are convertible at the date of record. In addition, the holders of Series A Preferred Stock, voting exclusively and as a separate class, are entitled to elect two directors of the Company. The holders of Class A common stock, Class B common stock and Preferred Stock, voting together as a single class on an as-if converted to Class B common stock basis, as applicable, shall be entitled to elect the balance of the total number of directors of the Company.
Conversion
Each share of Preferred Stock is convertible to either Class A common stock or Class B common stock at the option of the holder at any time after the date of issuance. Each share of Preferred Stock will be automatically converted into shares of Class B common stock at the applicable conversion ratio then in effect upon the either (i) the closing of a firm-commitment underwritten public offering with at least $50.0 million of gross proceeds to the Company or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of (A) the holders of a majority of the then-outstanding shares of Series A Preferred Stock and (B) the holders of a majority of the then-outstanding shares of Series B and Series B-1 Preferred Stock, as defined, consenting as separate classes.
The conversion ratio of each series of Preferred Stock is determined by dividing the Original Issue Price of each series by the Conversion Price of each series. The Original Issue Price is $1.00 per share for Series A Preferred Stock and $59.51 per share for Series B Preferred Stock and Series B-1 Preferred Stock. The Conversion Price at issuance was $1.00 per share for Series A Preferred Stock and $59.51 per share for Series B Preferred Stock and Series B-1 Preferred Stock, subject to appropriate adjustment in the event of any stock split, stock dividend, combination or other similar recapitalization and other adjustments as set forth in the Companys Certificate of Incorporation, as amended and restated.
If the public offering price of an IPO is less than one and one-half times (1.5x) the Series B and Series B-1 Preferred Stock Original Issue Price, the Series B and Series B-1 Preferred Stock Conversion Price then in effect shall be adjusted downward to an amount equal to the product of a) the Series B and Series B-1 Original Issue Prices, multiplied by b) the quotient of i) the IPO offering price, divided by ii) one and one-half times (1.5x) the Series B and Series B-1 Preferred Stock Original Issue Price, all of the foregoing subject to appropriate adjustment in the event of any stock dividend, stock split or combination or other similar recapitalization with respect to such class or series.
Dividends
The holders of Preferred Stock are entitled to receive noncumulative dividends if and when declared by the Companys board of directors. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company, other than dividends on shares of Class A common stock or Class B common stock payable in shares of Class A common stock or Class B common stock, unless the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to i) in the case of a dividend on Class A common stock or Class B common stock or any class or series that is convertible into Class A common stock or Class B common stock, that dividend per share of Preferred Stock as would equal the product of a) the dividend payable on each share of such class or series determined, if applicable, as if all shares or such class or series had been converted into Class A common stock or Class B common stock and b) the number of shares of Class A common stock or Class B common stock issuable upon conversion of a share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or ii) in the case of a dividend on any class or series that is not convertible into Class A common stock or Class B common stock, at a rate per share of Preferred Stock determined by a) dividing the amount of dividend payable on each share of such
F-19
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination of or other similar recapitalization with respect to such class or series) and b) multiplying such fraction by an amount equal to the Original Issue Price of each series of Preferred Stock. If the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of the Preferred Stock shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Preferred Stock dividend. No dividends were declared or paid during the years ended December 31, 2016 or 2017.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company or Liquidating Event (as described below), the holders of shares of Series B Preferred Stock and Series B-1 Preferred Stock will receive, in preference to the Series A Preferred Stock and common stockholders, an amount equal to the greater of (i) the Original Issue Price per share of the respective share of Series B and Series B-1 Preferred Stock, plus all dividends declared but unpaid on such shares, or (ii) the amount the holders would receive if the Series B Preferred Stock or Series B-1 Preferred Stock were converted into Class A common stock or Class B common stock prior to such liquidation event. In the event of a liquidation of the Company in which proceeds available for distribution to the holders of Series B Preferred Stock and Series B-1 Preferred Stock are not sufficient to permit payment in the full amount to which they are entitled, the holders of Series B-1 Preferred Stock shall be entitled to a liquidation preference that accrues at a greater rate than the holders of Series B Preferred Stock, but in no event shall the total liquidation preference on each share of Series B-1 Preferred Stock exceed $59.51 per share.
After the payment of all preferential amounts to the holders of the Series B Preferred Stock and Series B-1 Preferred Stock then, to the extent available, the remaining assets available for distribution shall be distributed among the holders of the Series A Preferred Stock, an amount equal to the Series A Original Issue Price, plus any declared but unpaid dividends. In the event that the assets available for distribution to the Series A Preferred Stock are not sufficient to permit payment to the holders of Series A Preferred Stock in the full amount to which they are entitled, the assets available for distribution will be distributed on a pro rata basis among the holders of the Series A Preferred Stock. After the payment of all preferential amounts to the holders of the Preferred Stock then, to the extent available, the remaining assets available for distribution shall be distributed among the holders of Series A Preferred Stock and common stock, pro rata based on the number of shares of held by each holder, on an as converted basis.
Unless the holders of (i) more than 50% of the then-outstanding shares of Series B Preferred Stock and Series B-1 Preferred Stock, as defined, and (ii) the holders of a majority of the then-outstanding shares of Series A Preferred Stock, voting as separate classes, elect otherwise, a Liquidating Event shall include a merger or consolidation (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) or a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company.
Redemption
At any time on or after June 30, 2022, each series of Preferred Stock is subject to mandatory redemption by the Company not more than 60 days after receipt by the Company of a written notice of requesting from the holders of a majority of the then-outstanding shares of such series of Preferred Stock (Series B Preferred Stock and Series B-1 Preferred Stock shall be considered together as a single class), in an amount equal to the Original Issue Price per share of each series of Preferred Stock plus any dividends declared but unpaid thereon. For redemptions occurring on or after June 30, 2028, the Series B Preferred Stock and Series B-1 Preferred Stock
F-20
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
redemption price shall be equal to the greater of i) the Series B or Series B-1 Preferred Stock Original Issue Price, as applicable, or ii) the adjusted fair market value of the Series B Preferred Stock or Series B-1 Preferred Stock on that date, as defined, plus any accrued but unpaid dividends on such shares.
During the year ended December 31, 2017, the Company recorded an adjustment of $14.1 million to the carrying value of Series B and B-1 Preferred Stock, with a corresponding offset to additional paid-in capital and accumulated deficit representing the change in the redemption value from December 31, 2016. There was no such increase in the adjusted fair market value of the Series B and B-1 Preferred Stock in 2016.
7. Common Stock
On September 8, 2017, the Company amended and restated its Certificate of Incorporation. Upon effectiveness of the amended and restated Certificate of Incorporation, each previously issued share of common stock was reclassified as one share of Class B common stock and each outstanding right to acquire one share of common stock was reclassified as a right to acquire one share of Class B common stock. In addition, the total number of shares of common stock the Company shall have authority to issue is 3,750,595 shares of Class A common stock, par value $0.001 per share and 3,445,762 shares of Class B common stock, par value $0.001 per share.
Each share of Class A common stock entitles the holder to one vote for each share on all matters submitted to a vote of the Companys stockholders at all meetings of stockholders and written actions in lieu of meetings. Each share of Class B common stock entitles the holder to ten votes for each share on all matters submitted to a vote of the Companys stockholders at all meetings of stockholders and written actions in lieu of meetings.
Holders of both classes of common stock are entitled to receive dividends, when and if declared by the board of directors.
Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion shall occur upon the occurrence of a transfer, of such share of Class B common stock or at the date and time, or the occurrence of an event, specified by a vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Preferred Stock and Class B common stock, voting together as a single class. A transfer is described as a sale, assignment, transfer, conveyance, hypothecation or disposition of such share or any legal or beneficial interest in such share other than certain permitted transfers as described in the amended and restated Certificate of Incorporation, including a transfer to a holder of Preferred Stock. Each share of Class B common stock held by a stockholder shall automatically convert into one fully paid and nonassessable share of Class A common stock nine months after the death or incapacity of the holder of such Class B common stock.
In July and August 2016, the Company repurchased 89,392 shares of its common stock at a price of $55.05 per share for a total cost of $4.9 million. In the three months ended December 31, 2016, the Company repurchased 262,260 shares of its common stock at a price of $55.05 per share for a total cost of $14.4 million. In the three months ended March 31, 2017, the Company repurchased 167,652 of its common stock at a price of $55.05 per share for a total cost of $9.2 million. Each of these repurchases was pursuant to a tender offer made by the Company to its stockholders, including employee stockholders. The price paid by the Company at the settlement date of each tender was the estimated fair value of the Companys common stock at such settlement date. The Company immediately retired all outstanding treasury shares after each repurchase of common stock.
Acquisitions of treasury stock have been recorded at cost. Treasury stock held was reported as a deduction from stockholders equity (deficit). When the treasury stock is retired, the carrying value of the treasury stock is
F-21
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
allocated between additional paid-in capital and retained earnings. The portion allocated to additional paid-in capital was limited to the sum of (i) all additional paid-in capital arising from previous retirements and net gains on sales of treasury stock of the same issue and (ii) the pro rata portion of additional paid-in capital and voluntary transfers of retained earnings on the same issue. To date, the Company has not reissued any treasury stock.
In December 2017, 3,000 shares of Class B common stock were automatically converted to 3,000 shares of Class A common stock pursuant to a transfer as described above. No additional consideration was paid or received by the Company in connection with this exchange.
8. Stock-Based Compensation
2008 Stock Incentive Plan
The Companys 2008 Stock Incentive Plan, as amended (the Plan), provides for the Company to issue equity awards to employees, consultants, advisors and directors. Under the Plan, the Company may grant stock-based incentive awards, including incentive or nonqualified stock options and restricted stock units, as determined by the board of directors.
As of December 31, 2017, the total number of shares of common stock that may be issued under the Plan was 1,055,089 shares, of which 205,578 shares remained available for future grant as of December 31, 2017. Shares of common stock issued upon exercise of stock options granted prior to September 8, 2017 will be issued as new Class B common stock. Shares of common stock issued upon exercise of stock options granted after September 8, 2017 will be issued as new Class A common stock. Options and restricted stock granted under the Plan vest over periods determined by the board of directors. Options granted under the Plan expire ten years from the date of the grant.
The exercise price for stock options granted is not less than the fair value of common shares as determined by the board of directors as of the date of grant. The Companys board of directors values the Companys common stock, taking into consideration its most recently available valuation of common stock performed by third parties as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.
F-22
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Option Valuation
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company, historically, has been a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on the historical volatility of its publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Companys stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The relevant data used to determine the value of the stock option grants for employees and directors for the years ended December 31, 2016 and 2017 is as follows, presented on a weighted-average basis:
Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
Risk-free interest rate |
1.79 | % | 2.03 | % | ||||
Expected volatility |
63.00 | % | 47.00 | % | ||||
Expected dividend yield |
0 | % | 0 | % | ||||
Expected term (in years) |
6.49 | 6.08 |
Stock Option Activity
The following table summarizes the Companys option activity since December 31, 2016:
Number
of Shares |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||||||||
(in years) | (in thousands) | |||||||||||||||
Outstanding as of December 31, 2016 |
484,355 | $ | 34.56 | 7.82 | $ | 9,926 | ||||||||||
Granted |
110,660 | 55.70 | ||||||||||||||
Exercised |
(50,461 | ) | 30.69 | |||||||||||||
Forfeited |
(102,609 | ) | 44.93 | |||||||||||||
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Outstanding as of December 31, 2017 |
441,945 | $ | 37.88 | 7.30 | $ | 8,895 | ||||||||||
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Vested and expected to vest as of December 31, 2017 |
404,602 | $ | 36.35 | 7.16 | $ | 8,763 | ||||||||||
Options exercisable as of December 31, 2017 |
262,582 | $ | 26.54 | 6.30 | $ | 8,264 |
As of December 31, 2017, outstanding options of 402,085 were for the purchase of Class B common stock and outstanding options of 39,860 were for the purchase of Class A common stock.
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Companys common stock for those stock options that had strike prices lower than the fair value of the Companys common stock.
The aggregate intrinsic value of options exercised during the years ended December 31, 2016 and 2017 was $3.5 million and $1.4 million, respectively. The weighted average grant-date fair value of awards granted to employees and directors during the years ended December 31, 2016 and 2017 was $32.60 per share and $26.21 per share, respectively.
F-23
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2017, there were outstanding unvested service-based stock options held by non-employees for the purchase of 11,438 shares. Stock-based compensation expense for non-employees was $0.2 million and $0.1 million for the years ended December 31, 2016 and 2017, respectively. Amounts expensed during the remaining vesting period will be determined based on the fair value at the time of vesting.
Restricted Stock Units
In October, 2016, the Company granted performance-based RSUs for the right to receive 24,000 shares of common stock with a grant-date fair value of $55.05 per share. In July 2017, the Company granted performance-based RSUs for the right to receive 9,000 shares of common stock with a grant-date fair value of $55.70 per share. These RSUs are subject to both service-based vesting conditions of 48 months and performance-based vesting conditions achieved upon a liquidity event, defined as either a sale event or IPO. Upon the achievement of an IPO, the vesting of each RSU occurs at the later of (i) six months following the IPO or (ii) such period of time following the IPO that shares of capital stock underlying the relevant RSU are no longer subject to a lock-up period. The Company has not recorded any compensation expense related to these RSUs during the years ended December 31, 2016 and 2017 as the achievement of the performance condition has been deemed to be not probable. The following table summarizes the Companys RSU activity since December 31, 2016:
Number of Shares |
Weighted Average
Grant-Date Fair Value |
|||||||
Unvested balance December 31, 2016 |
24,000 | $ | 55.05 | |||||
Granted |
9,000 | $ | 55.70 | |||||
Forfeited |
(2,688 | ) | $ | 55.70 | ||||
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Unvested balance December 31, 2017 |
30,312 | $ | 55.19 | |||||
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Stock-Based Compensation
The Company recorded stock-based compensation expense in the following expense categories of its statements of operations and comprehensive loss (in thousands):
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Cost of revenue |
$ | 32 | $ | 27 | ||||
Sales and marketing |
762 | 789 | ||||||
Research and development |
429 | 467 | ||||||
General and administrative |
733 | 577 | ||||||
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$ | 1,956 | $ | 1,860 | |||||
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As of December 31, 2017, unrecognized compensation expense related to unvested options was $5.7 million, which is expected to be recognized over a weighted average period of 3.7 years.
9. Income Taxes
2017 U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA) was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in
F-24
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as a limitation of the deduction for net operating losses to 80% of current year taxable income and the elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction of the Companys deferred tax assets and liabilities, and a corresponding reduction to its valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA. The other provisions of the TCJA did not have a material impact on the December 31, 2017 financial statements.
Income Taxes
During the year ended December 31, 2016, the Company recorded less than $0.1 million of income tax expense for current federal and state taxes. The Company had no income tax expense for the year ended December 31, 2017. The Company has no foreign operations and therefore, has not provided for any foreign taxes. A reconciliation of the U.S. federal statutory income tax rate to the Companys effective income tax rate is as follows:
Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
Federal statutory income tax rate |
34.0 | % | 34.0 | % | ||||
State taxes, net of federal benefit |
(1.8 | ) | 3.0 | |||||
Federal and state research and development tax credits |
45.5 | 13.7 | ||||||
Nondeductible items |
(8.8 | ) | (1.7 | ) | ||||
2017 TCJA |
| (26.9 | ) | |||||
Stock-based compensation |
(44.1 | ) | (2.6 | ) | ||||
Other |
(0.2 | ) | 0.3 | |||||
Change in valuation allowance |
(26.6 | ) | (19.8 | ) | ||||
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Effective income tax rate |
(2.0 | )% | | % | ||||
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F-25
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
Net deferred tax assets as of December 31, 2016 and 2017 consisted of the following (in thousands):
December 31, | ||||||||
2016 | 2017 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 1,738 | $ | 2,363 | ||||
Research and development tax credit carryforwards |
1,413 | 2,501 | ||||||
Accrued expenses and other current liabilities |
268 | 392 | ||||||
Intangible assets |
68 | 42 | ||||||
Property and equipment |
| 111 | ||||||
Stock-based compensation |
297 | 265 | ||||||
Other |
319 | 259 | ||||||
|
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|
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Total deferred tax assets |
4,103 | 5,933 | ||||||
Valuation allowance |
(3,795 | ) | (5,677 | ) | ||||
|
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Net deferred tax assets |
308 | 256 | ||||||
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Deferred tax liabilities: |
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Capitalized software development costs |
(304 | ) | (256 | ) | ||||
Property and equipment |
(4 | ) | | |||||
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Deferred tax liabilities |
(308 | ) | (256 | ) | ||||
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Net deferred tax assets and liabilities |
$ | | $ | | ||||
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As of December 31, 2017, the Company had federal and state net operating loss carryforwards of $9.1 million and $7.1 million, respectively, which may be available to offset future taxable income and expire at various dates beginning in 2027. As of December 31, 2017, the Company also has federal and state research and development tax credit carryforwards of $1.8 million and $0.9 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2029.
Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 and Section 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income and tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards may be subject to an annual limitation, which is determined by first multiplying the value of the Companys stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which are comprised primarily of net operating loss carryforwards and research and
F-26
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
development tax credit carryforwards. Management has considered the Companys history of cumulative net losses incurred since inception, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31 2016 and 2017. The Company reevaluates the positive and negative evidence at each reporting period.
The change in the valuation allowance for deferred tax assets during the year ended December 31, 2016 related primarily to an increase in net operating loss carryforwards and research and development tax credit carryforwards. The change in the valuation allowance during the year ended December 31, 2017 related primarily to an increase in net operating loss carryforwards and research and development tax credit carryforwards, which was partially offset by a decrease in deferred tax assets resulting from the change in our federal tax rate from 34% to 21%, effective January 1, 2018. The changes in the valuation allowance for 2016 and 2017 were as follows (in thousands):
Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
Valuation allowance as of beginning of year |
$ | 3,552 | $ | 3,795 | ||||
Increases recorded to accumulated deficit (adoption of ASU 2016-09) |
| 876 | ||||||
Decreases recorded as a benefit to income tax provision |
| (1,368 | ) | |||||
Increases recorded to tax provision |
243 | 2,374 | ||||||
|
|
|
|
|||||
Valuation allowance as of end of year |
$ | 3,795 | $ | 5,677 | ||||
|
|
|
|
The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. No reserve for uncertain tax positions or related interest and penalties has been recorded at December 31, 2016 and 2017.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company is open to future tax examination under statute from 2014 to the present, however, carryforward attributes that were generated prior to January 1, 2014 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period.
10. Commitments and Contingencies
Operating Leases
The Company leases office space in Cambridge, Massachusetts under a non-cancelable operating lease that expires in September 2024. The Company leases office space in Woburn, Massachusetts under a non-cancelable operating lease that expires in January 2022.
Lease incentives, payment escalations and rent holidays specified in the lease agreements are accrued or deferred as appropriate such that rent expense per square foot is recognized on a straight-line basis over the terms of occupancy. As of December 31, 2016 and 2017, the Company had a deferred rent liability of $0.3 million and $0.9 million, respectively.
F-27
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2016 and 2017, the Company maintained security deposits of $0.4 million with the landlords of its leases, which amounts are included in other assets on the Companys balance sheet.
Future minimum lease payments under the operating leases as of December 31, 2017 are as follows (in thousands):
Year Ending December 31, |
||||
2018 |
$ | 1,514 | ||
2019 |
1,861 | |||
2020 |
1,996 | |||
2021 |
2,075 | |||
2022 |
1,911 | |||
Thereafter |
3,405 | |||
|
|
|||
$ | 12,762 | |||
|
|
In April 2017, the Company entered into a sublease agreement with a subtenant for 7,735 square feet of general office space. The sublease will terminate in June 2018. The Company recognized $0.3 million under the sublease as a reduction in rent expense in the statements of operations and comprehensive loss for the year ended December 31, 2017. During the years ended December 31, 2016 and 2017, the Company recorded rent expense of $0.9 million and $1.7 million, respectively.
Indemnification Agreements
In the normal course of business, the Company may provide indemnification of varying scope and terms to third parties and enters into commitments and guarantees (Agreements) under which it may be required to make payments. The duration of these Agreements varies, and in certain cases, is indefinite. Furthermore, many of these Agreements do not limit the Companys maximum potential payment exposure.
In addition, the Company has entered into indemnification agreements with members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
Through December 31, 2016 and 2017, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2016 and 2017, respectively.
Legal Proceedings
The Company, from time to time, is subject to legal proceedings and claims that arise in the normal course of its business. In the opinion of management, the amount of ultimate liability with respect to any such actions should not have a material adverse effect on the Companys results of operations of financial position. As of December 31, 2016 and 2017, the Company does not have any contingency reserves established for any litigation liabilities.
F-28
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
11. Net Loss and Unaudited Pro Forma Net Loss per Share
Net Loss per Share
The Company has two classes of common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. As a result, basic and diluted net income (loss) per share of Class A common stock and share of Class B common stock are equivalent. Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
Numerator: |
||||||||
Net loss |
$ | (933 | ) | $ | (5,071 | ) | ||
Accretion of redeemable convertible preferred stock to redemption value |
(656 | ) | (14,093 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common stockholders |
$ | (1,589 | ) | $ | (19,164 | ) | ||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average common shares outstanding, basic and diluted |
1,220,734 | 1,096,735 | ||||||
|
|
|
|
|||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | (1.30 | ) | $ | (17.47 | ) | ||
|
|
|
|
The Companys potentially dilutive securities, which include redeemable convertible preferred stock, options and unvested restricted stock units, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share attributable to common stockholders. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
Redeemable convertible preferred stock (as converted to common stock) |
1,672,451 | 1,574,508 | ||||||
Options to purchase common stock |
484,355 | 441,945 | ||||||
Unvested restricted stock units |
24,000 | 30,312 | ||||||
|
|
|
|
|||||
2,180,806 | 2,046,765 | |||||||
|
|
|
|
Unaudited Pro Forma Net Loss per Share
The unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2017 has been prepared to give effect to adjustments arising upon the completion of a qualified initial public offering. The unaudited pro forma net loss attributable to common stockholders used in the calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders is the same as net loss per share attributable to common stockholders.
The unaudited pro forma basic and diluted weighted average common shares outstanding used in the calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2017 has been prepared to give effect, upon a qualified initial public offering, to the
F-29
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
automatic conversion of all outstanding shares of redeemable convertible preferred stock into common stock as if the proposed initial public offering had occurred on the later of January 1, 2017 or the issuance date of the redeemable convertible preferred stock.
Unaudited pro forma basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
Year Ended
December 31, 2017 |
||||
(unaudited) | ||||
Numerator: |
||||
Net loss attributable to common stockholders |
$ | |||
Accretion of redeemable convertible preferred stock to redemption value |
||||
|
|
|||
Pro forma net loss attributable to common stockholders |
$ | |||
|
|
|||
Denominator: |
||||
Weighted average common shares outstanding, basic and diluted |
||||
Pro forma adjustment to reflect automatic conversion of redeemable convertible preferred stock to common stock upon the completion of the proposed initial public offering |
||||
|
|
|||
Pro forma weighted average common shares outstanding, basic and diluted |
||||
|
|
|||
Pro forma net loss per share attributable to common stockholders, basic and diluted |
$ | |||
|
|
12. Retirement Plan
The Company has established a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. As currently established, the Company is not required to make any contributions to the 401(k) Plan. The Company did not make any matching contributions during the year ended December 31, 2016 and contributed $0.2 million during the year ended December 31, 2017.
13. Related Party Transactions
Related party referrals
The Company has, in the ordinary course of business, entered into arrangements with other companies who have shareholders in common with the Company. Pursuant to these arrangements, related-party affiliates receive payments for providing website visitor referrals. During the years ended December 31, 2016 and 2017, the Company recorded sales and marketing expenses of $9.1 million in each year related to these arrangements. During the years ended December 31, 2016 and 2017, the Company paid $8.8 million and $8.6 million, respectively, related to these arrangements. As of December 31, 2016 and 2017, amounts due to related-party affiliates totaled $1.1 million and $1.6 million, respectively, which were included in accounts payable on the balance sheets.
Repayment of related party note
During the year ended December 31, 2016, the Company repaid a related party note with a stockholder totaling $5.1 million.
F-30
EVERQUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
14. Subsequent Events
For its financial statements as of December 31, 2017 and for the year then ended, the Company evaluated subsequent events through March 30, 2018, the date on which those financial statements were issued.
2018 Loan Modification
On March 16, 2018, the Company executed the 2018 Loan Modification to modify the amended Loan and Security Agreement to increase the revolving line of credit from $6.0 million to $11.0 million, extend the maturity date of the revolving line of credit to March 2020 and eliminate the term loan. Pursuant to the 2018 Loan Modification, borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances and continue to bear interest at one-half percent (0.5%) above the greater of 4.25% or the prime rate. Borrowings are collateralized by substantially all of the Companys assets and property.
The Company is still subject to specified affirmative and negative covenants until maturity. These covenants include limitations on the Companys ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. In addition, pursuant to the 2018 Loan Modification, the Company is only required to maintain one financial performance covenant: a minimum asset coverage ratio of 1.5 to 1, calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. Events which would meet the criteria of a default under the 2018 Loan Modification include failure to make payments when due, insolvency events, failure to comply with covenants or material adverse events with respect to the Company.
The terms of the 2018 Loan Modification required that the existing outstanding term loan outstanding under the amended Loan and Security Agreement be repaid. Accordingly, on March 27, 2018, the Company used $2.3 million of proceeds from the revolving line of credit to repay all amounts then due on the term loan. As of March 27, 2018, $2.8 million remained available for borrowing under the revolving line of credit.
F-31
EVERQUOTE, INC.
(Unaudited)
(In thousands, except share and per share amounts)
December 31,
2017 |
March 31,
2018 |
Pro Forma
March 31, 2018 |
||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash |
$ | 2,363 | $ | 2,579 | $ | |||||||
Accounts receivable |
14,694 | 20,177 | ||||||||||
Prepaid expenses and other current assets |
593 | 878 | ||||||||||
|
|
|
|
|
|
|||||||
Total current assets |
17,650 | 23,634 | ||||||||||
Property and equipment, net |
2,129 | 2,495 | ||||||||||
Deferred initial public offering costs |
| 1,332 | ||||||||||
Other assets |
740 | 734 | ||||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 20,519 | $ | 28,195 | $ | |||||||
|
|
|
|
|
|
|||||||
Liabilities, Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit) |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 11,894 | $ | 14,829 | $ | |||||||
Accrued expenses and other current liabilities |
1,775 | 5,254 | ||||||||||
Deferred revenue |
986 | 1,130 | ||||||||||
Current portion of long-term debt, net of discount |
361 | | ||||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
15,016 | 21,213 | ||||||||||
Deferred rent, net of current portion |
860 | 1,008 | ||||||||||
Long-term debt, net of current portion |
4,250 | 5,774 | ||||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
20,126 | 27,995 | ||||||||||
|
|
|
|
|
|
|||||||
Commitments and contingencies (Note 10) |
||||||||||||
Redeemable convertible preferred stock (Series A, B and B-1), $0.001 par value; 1,867,886 shares authorized at December 31, 2017 and March 31, 2018; 1,574,508 shares issued and outstanding at December 31, 2017 and March 31, 2018; aggregate liquidation preference of $36,844 at March 31, 2018; no shares issued or outstanding, pro forma at March 31, 2018 |
50,937 | 61,950 | ||||||||||
|
|
|
|
|
|
|||||||
Stockholders equity (deficit): |
||||||||||||
Class A common stock, $0.001 par value; 3,750,595 shares authorized at December 31, 2017 and March 31, 2018; 3,000 and 20,550 shares issued and outstanding at December 31, 2017 and March 31, 2018, respectively; 20,550 shares issued and outstanding, pro forma at March 31, 2018 |
| | ||||||||||
Class B common stock, $0.001 par value; 3,445,762 shares authorized at December 31, 2017 and March 31, 2018; 1,083,874 and 1,114,688 shares issued and outstanding at December 31, 2017 and March 31, 2018, respectively; shares issued and outstanding pro forma at March 31, 2018 |
1 | 1 | ||||||||||
Additional paid-in capital |
774 | | ||||||||||
Accumulated deficit |
(51,319 | ) | (61,751 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total stockholders equity (deficit) |
(50,544 | ) | (61,750 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total liabilities, redeemable convertible preferred stock and stockholders equity (deficit) |
$ | 20,519 | $ | 28,195 | $ | |||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-32
EVERQUOTE, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended March 31, | ||||||||
2017 | 2018 | |||||||
Revenue |
$ | 31,752 | $ | 40,730 | ||||
|
|
|
|
|||||
Cost and operating expenses: |
||||||||
Cost of revenue |
1,736 | 2,615 | ||||||
Sales and marketing |
28,427 | 35,023 | ||||||
Research and development |
2,131 | 2,614 | ||||||
General and administrative |
1,009 | 1,713 | ||||||
|
|
|
|
|||||
Total cost and operating expenses |
33,303 | 41,965 | ||||||
|
|
|
|
|||||
Loss from operations |
(1,551 | ) | (1,235 | ) | ||||
Interest expense |
(67 | ) | (93 | ) | ||||
|
|
|
|
|||||
Loss before income taxes |
(1,618 | ) | (1,328 | ) | ||||
Provision for income taxes |
| | ||||||
|
|
|
|
|||||
Net loss and comprehensive loss |
(1,618 | ) | (1,328 | ) | ||||
Accretion of redeemable convertible preferred stock to redemption value |
(11,784 | ) | (11,013 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common stockholders |
$ | (13,402 | ) | $ | (12,341 | ) | ||
|
|
|
|
|||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | (11.57 | ) | $ | (11.34 | ) | ||
|
|
|
|
|||||
Weighted average common shares outstanding, basic and diluted |
1,157,913 | 1,088,401 | ||||||
|
|
|
|
|||||
Pro forma net loss per share attributable to common stockholders, basic and diluted |
$ | |||||||
|
|
|||||||
Pro forma weighted average common shares outstanding, basic and diluted |
||||||||
|
|
The accompanying notes are an integral part of these financial statements.
F-33
EVERQUOTE, INC.
CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS DEFICIT
(Unaudited)
(in thousands, except share amounts)
Series A, B and
B-1
Redeemable Convertible Preferred Stock |
Class A
|
Class B Common Stock |
Additional
Paid-in Capital |
Accumulated
Deficit |
Total
Stockholders Deficit |
|||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
Balances at December 31, 2017 |
1,574,508 | $ | 50,937 | 3,000 | $ | | 1,083,874 | $ | 1 | $ | 774 | $ | (51,319 | ) | $ | (50,544 | ) | |||||||||||||||||||||
Issuance of common stock upon exercise of stock options |
| | | | 48,364 | | 568 | | 568 | |||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | 567 | | 567 | |||||||||||||||||||||||||||||
Transfer of Class B common stock to Class A common stock |
| | 17,550 | | (17,550 | ) | | | | | ||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value |
| 11,013 | | | | | (1,909 | ) | (9,104 | ) | (11,013 | ) | ||||||||||||||||||||||||||
Net loss |
| | | | | | | (1,328 | ) | (1,328 | ) | |||||||||||||||||||||||||||
|
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|
|
|
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|
|
|
|
|
|||||||||||||||||||||
Balances at March 31, 2018 |
1,574,508 | $ | 61,950 | 20,550 | $ | | 1,114,688 | $ | 1 | $ | | $ | (61,751 | ) | $ | (61,750 | ) | |||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-34
EVERQUOTE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended March 31, | ||||||||
2017 | 2018 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (1,618 | ) | $ | (1,328 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
404 | 294 | ||||||
Stock-based compensation expense |
471 | 567 | ||||||
Noncash interest expense |
5 | 14 | ||||||
Deferred rent |
55 | 148 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(88 | ) | (5,483 | ) | ||||
Prepaid expenses and other current assets |
(101 | ) | (285 | ) | ||||
Other assets |
(61 | ) | | |||||
Accounts payable |
(347 | ) | 2,611 | |||||
Accrued expenses and other current liabilities |
666 | 2,475 | ||||||
Deferred revenue |
66 | 144 | ||||||
|
|
|
|
|||||
Net cash used in operating activities |
(548 | ) | (843 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Acquisition of property and equipment, including costs capitalized for development of internal-use software |
(394 | ) | (654 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(394 | ) | (654 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of stock options |
380 | 568 | ||||||
Repurchase of common stock |
(9,229 | ) | | |||||
Proceeds from borrowings on line of credit |
1,250 | 12,729 | ||||||
Repayments of borrowings on line of credit |
(1,250 | ) | (8,955 | ) | ||||
Repayments of term loan |
(375 | ) | (2,625 | ) | ||||
Payments of initial public offering costs |
| (4 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
(9,224 | ) | 1,713 | |||||
|
|
|
|
|||||
Net increase (decrease) in cash |
(10,166 | ) | 216 | |||||
Cash at beginning of period |
12,400 | 2,363 | ||||||
|
|
|
|
|||||
Cash at end of period |
$ | 2,234 | $ | 2,579 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 57 | $ | 107 | ||||
Supplemental disclosure of noncash investing and financing information: |
||||||||
Deferred initial public offering costs included in accounts payable or accrued expenses |
$ | | $ | 1,328 | ||||
Conversion of Series A redeemable convertible preferred stock to common stock |
$ | 98 | $ | | ||||
Retirement of treasury stock |
$ | 9,229 | $ | | ||||
Accretion of redeemable convertible preferred stock to redemption value |
$ | 11,784 | $ | 11,013 |
The accompanying notes are an integral part of these financial statements.
F-35
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business and Basis of Presentation
EverQuote, Inc. (the Company) was incorporated in the state of Delaware in 2008. Through its internet websites, the Company operates an online marketplace for consumers shopping for auto, home and life insurance quotes. The Company generates revenue by selling consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States.
The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, protection of proprietary technology, customer concentration, patent litigation, the need to obtain additional financing to support growth and dependence on third parties and key individuals.
The accompanying financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has incurred recurring losses, including net losses of $5.1 million for the year ended December 31, 2017 and $1.3 million for the three months ended March 31, 2018. As of March 31, 2018, the Company had an accumulated deficit of $61.8 million. Through March 31, 2018, the Company has primarily funded its operations through issuances of shares of redeemable convertible preferred stock and common stock, debt, including a revolving line of credit and a term loan with Western Alliance Bank, and cash flows from operations. At December 31, 2017, in connection with the revolving line of credit and the term loan, the Company was subject to certain borrowing covenants, including a requirement to maintain a minimum asset coverage ratio of 1.35 to 1, calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit and the term loan. In the event of a default, which includes the occurrence of circumstances that could reasonably be expected to have a material adverse effect on the Company, the bank may declare all borrowings immediately due and payable resulting in the Company immediately needing additional funds. In March 2018, pursuant to the Loan and Security Modification Agreement, the revolving line of credit was increased from $6.0 million to $11.0 million and the minimum asset coverage ratio was changed to 1.5 to 1 (See Note 5).
The Company expects that existing cash together with liquidity available from its revolving line of credit will be sufficient to fund the Companys operating expenses and capital expenditure requirements through at least 12 months from the issuance date of the interim financial statements. If the Company does not achieve its revenue goals as planned or if the debt becomes immediately due and payable, the Company believes that it can reduce its operating costs, pay down its outstanding debt and achieve positive cash flow from operations. If the Company needs additional funds and is unable to obtain funding on a timely basis, the Company may need to significantly curtail its operations in an effort to provide sufficient funds to continue its operations, which could adversely affect its business prospects.
The Company is seeking to complete an initial public offering (IPO) of its Class A common stock. Upon the completion of a qualified public offering on specified terms, the Companys outstanding redeemable convertible preferred stock will automatically convert into shares of Class B common stock (See Note 6). In the event the Company does not complete an IPO or does not achieve its revenue goals, the Company may seek additional funding through private equity financings or additional debt financings. The Company may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Companys stockholders.
The Companys financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP).
F-36
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Unaudited Condensed Financial Information
The balance sheet at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed financial statements as of March 31, 2018, and for the three months ended March 31, 2017 and 2018, have been prepared by the Company, pursuant to the rules and regulations of the SEC for interim financial statements.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Companys audited financial statements and the notes thereto for the year ended December 31, 2017. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Companys financial position as of March 31, 2018 and results of operations and cash flows for the three months ended March 31, 2017 and 2018 have been made. The results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, any other interim periods, or any future year or period.
2. Summary of Significant Accounting Policies
Unaudited Pro Forma Information
The accompanying unaudited pro forma balance sheet as of March 31, 2018 has been prepared to give effect to the automatic conversion of all shares of redeemable convertible preferred stock outstanding into shares of common stock, after giving effect to the anti-dilution provision related to the Series B and Series B-1 redeemable convertible preferred stock as described in Note 6, as if the proposed IPO had occurred on March 31, 2018.
In the accompanying statements of operations and comprehensive loss, the unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the three months ended March 31, 2018 has been prepared to give effect, upon the closing of a qualified IPO, to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock, after giving effect to the anti-dilution provision related to the Series B and Series B-1 redeemable convertible preferred stock as described in Note 6, as if the proposed IPO had occurred on the later of January 1, 2017 or the issuance date of the redeemable convertible preferred stock.
Concentrations of Credit Risk and of Significant Customers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company maintains its cash at two accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company sells its consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. For the three months ended March 31, 2017 one customer represented 25% of total revenue. For the three months ended March 31, 2018 two customers represented 16% and 10% of total revenue. As of December 31, 2017, four customers accounted for 12%, 11%, 11% and 11% of the accounts receivable balance. As of March 31, 2018, three customers accounted for 11%, 10% and 10% of the accounts receivable balance.
F-37
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Deferred Offering Costs
The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive loss. The Company recorded deferred offering costs of $0 and $1.3 million as of December 31, 2017 and March 31, 2018, respectively.
Revenue Recognition
The Company derives its revenue by selling consumer referrals to its insurance provider customers, including insurance carriers and agents. The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 605 Revenue Recognition (ASC 605). Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sellers price to the buyer is fixed or determinable and collectability is reasonably assured. The Company recognizes revenue from the sale of consumer referrals upon delivery of the referral. The Company records revenue from the sales of consumer referrals net of credits or other applicable allowances in the same period in which the related sales are recorded, based on the underlying contract terms.
Amounts received prior to satisfying the revenue recognition criteria listed above are recorded as deferred revenue in the accompanying balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue.
Advertising Expense
Advertising expense consists of variable costs that are related to attracting consumers to the Companys marketplace, increasing downloads of its social safe-driving mobile app, EverDrive, and promoting its marketplace to insurance carriers and agents. The Company expenses advertising costs as incurred and such costs are included in sales and marketing expense in the accompanying statements of operations and comprehensive loss. During the three months ended March 31, 2017 and 2018, advertising expense totaled $23.2 million and $29.6 million, respectively.
Accounts Receivable
The Company provides credit to customers in the ordinary course of business and believes its credit policies are prudent and reflect industry practices and business risk. Management reviews accounts receivable on a periodic basis and reserves for receivables in the Companys allowance for doubtful accounts on a specific identification basis when they are determined to be uncollectible. After the Company has exhausted all collection efforts, the outstanding receivable is written off against the allowance. The Company had no allowance for doubtful accounts as of December 31, 2017 and March 31, 2018, as all amounts were collectible.
Recently Adopted Accounting Pronouncements
In May 2017, the FASB issued ASU No. 2017-09, CompensationStock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted the standard prospectively as of January 1, 2018. The adoption of ASU 2017-09 did not affect the Companys financial statements as there were no modifications of any share-based awards during the three months ended March 31, 2018.
F-38
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09) and has since issued several additional amendments thereto, collectively referred to herein as ASC 606. ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. The new standards require entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, ASC 606 provides guidance on accounting for certain revenue related costs including costs associated with obtaining and fulfilling a contract. ASC 606 may be applied using either a full retrospective approach, under which all years included in the financial statements will be presented under the revised guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the entity at the date of adoption. For public entities, the guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual periods beginning after December 15, 2018. The Company is currently planning to adopt ASC 606 on January 1, 2019, in accordance with the non-public company requirements. The Company is currently evaluating the method of adoption and the potential impact to the Companys financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230) (ASU 2016-15), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public entities, the standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the standard is effective for annual periods beginning after December 15, 2018. Early adoption is permitted for all entities. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact that the adoption of ASU 2016-15 will have on its financial statements.
F-39
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) (ASU 2016-18), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. For public entities, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that the adoption of ASU 2016-18 will have on its financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (ASU 2017-11). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. For public entities, ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, ASU 2017-11 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its financial statements.
3. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
December 31,
2017 |
March 31,
2018 |
|||||||
Computer equipment |
$ | 1,917 | $ | 2,047 | ||||
Software |
4,238 | 4,739 | ||||||
Furniture and fixtures |
791 | 812 | ||||||
Leasehold improvements |
466 | 468 | ||||||
|
|
|
|
|||||
7,412 | 8,066 | |||||||
Less: Accumulated depreciation and amortization |
(5,283 | ) | (5,571 | ) | ||||
|
|
|
|
|||||
$ | 2,129 | $ | 2,495 | |||||
|
|
|
|
Depreciation and amortization expense was $0.4 million and $0.3 million for the three months ended March 31, 2017 and 2018, respectively.
The Company capitalized $0.1 million and $0.5 million in the three months ended March 31, 2017 and 2018, respectively, for website and internal-use software development costs.
F-40
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
December 31,
2017 |
March 31,
2018 |
|||||||
Accrued advertising expenses |
$ | 721 | $ | 1,670 | ||||
Accrued employee compensation and benefits |
433 | 1,840 | ||||||
Accrued professional fees |
154 | 1,321 | ||||||
Other current liabilities |
467 | 423 | ||||||
|
|
|
|
|||||
$ | 1,775 | $ | 5,254 | |||||
|
|
|
|
5. Loan and Security Agreement
As of December 31, 2017, the Company had outstanding borrowings under an amended Loan and Security Agreement including borrowings under a revolving line of credit and a term loan. Borrowings under the revolving line of credit could not exceed 80% of eligible accounts receivable balances and bore interest at an annual rate of one-half percent (0.5%) above the greater of 3.5% or the prime rate. The interest rate for the revolving line of credit was 5.0% as of December 31, 2017. The term loan was repayable in 36 equal monthly installments through August 2019 and accrued interest at an annual rate of 2.0% above the greater of 3.5% or the prime rate. The interest rate for the term loan was 6.5% as of December 31, 2017. Borrowings under the amended Loan and Security Agreement were collateralized by substantially all of the Companys assets and property. Under the amended Loan and Security Agreement, the Company had agreed to affirmative and negative covenants to which it would have remained subject until maturity. These covenants included limitations on the Companys ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. The amended Loan and Security Agreement required the Company to maintain two financial covenants: a minimum asset coverage ratio of 1.35 to 1 and an actual-to-plan performance metric of at least 65%. Events of default under the amended Loan and Security Agreement included failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to the Company. As of December 31, 2017, the Company was not in compliance with one of its financial performance covenants. However, the Company received a waiver of noncompliance from the lender related to the covenant default.
In March 2018, the Company executed the 2018 Loan Modification (the 2018 Loan Modification) to modify the amended Loan and Security Agreement to increase the revolving line of credit from $6.0 million to $11.0 million, extend the maturity date of the revolving line of credit to March 2020 and eliminate the term loan. Pursuant to the 2018 Loan Modification, borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances and continue to bear interest at one-half percent (0.5%) above the greater of 4.25% or the prime rate. The interest rate for the revolving line of credit was 5.25% as of March 31, 2018. Borrowings are collateralized by substantially all of the Companys assets and property. The terms of the 2018 Loan Modification required that the existing outstanding term loan outstanding under the amended Loan and Security Agreement be repaid. Accordingly, on March 27, 2018, the Company used $2.3 million of proceeds from the revolving line of credit to repay all amounts then due on the term loan.
The Company is still subject to specified affirmative and negative covenants until maturity. These covenants include limitations on the Companys ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. In addition, pursuant to the 2018 Loan Modification, the
F-41
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Company is only required to maintain one financial performance covenant: a minimum asset coverage ratio of 1.5 to 1, calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. Events which would meet the criteria of a default under the 2018 Loan Modification include failure to make payments when due, insolvency events, failure to comply with covenants or material adverse events with respect to the Company. As of March 31, 2018, the Company was in compliance with all such covenants. There can be no guarantee that covenants will be met or waivers will be obtained in the future.
As of December 31, 2017, the Company had $2.0 million outstanding on the revolving line of credit, of which the full amount was classified within long-term debt, net of current portion, and $2.6 million outstanding on the term loan, of which $0.4 million was classified within current portion of long-term debt, net of discount, and $2.2 million was classified within long-term debt, net of current portion. As of March 31, 2018, the Company had $5.8 million outstanding on the revolving line of credit, of which the full amount was classified within long-term debt, net of current portion. As of March 31, 2018, $5.2 million remained available for borrowing under the revolving line of credit. Amounts outstanding under the revolving line of credit are required to be repaid in March 2020.
For the three months ended March 31, 2017 and 2018, the weighted average effective interest rate was 5.83% and 5.76%, respectively.
6. Redeemable Convertible Preferred Stock
The Company has issued Series A redeemable convertible preferred stock (the Series A Preferred Stock), Series B redeemable convertible preferred stock (the Series B Preferred Stock) and Series B-1 redeemable convertible preferred stock (the Series B-1 Preferred Stock). The Series A Preferred Stock, the Series B Preferred Stock and the Series B-1 Preferred Stock are collectively referred to as the Preferred Stock.
In February 2017, holders of 97,943 shares of Series A Preferred Stock converted their shares to 97,943 shares of common stock. No additional consideration was paid or received by the Company in connection with these conversions. In April 2017, the Company exchanged 132,749 shares of Series B Preferred Stock for an equal number of shares of Series B-1 Preferred Stock. No additional consideration was paid or received by the Company in connection with this exchange. The shares of Series B-1 Preferred Stock have all the same rights and preferences as the Series B Preferred Stock, with the exception of the Series B-1 Preferred Stock liquidation preference.
As of each balance sheet date, the Preferred Stock consisted of the following (in thousands, except share amounts):
As of December 31, 2017 | ||||||||||||||||||||
Preferred Stock
Authorized |
Preferred Stock
Issued and Outstanding |
Carrying Value |
Liquidation
Preference |
Common Stock
Issuable Upon Conversion |
||||||||||||||||
Series A Preferred Stock |
1,265,100 | 971,722 | $ | 972 | $ | 972 | 971,722 | |||||||||||||
Series B Preferred Stock |
470,037 | 470,037 | 38,961 | 27,972 | 470,037 | |||||||||||||||
Series B-1 Preferred Stock |
132,749 | 132,749 | 11,004 | 7,900 | 132,749 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,867,886 | 1,574,508 | $ | 50,937 | $ | 36,844 | 1,574,508 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-42
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2018 | ||||||||||||||||||||
Preferred Stock
Authorized |
Preferred Stock
Issued and Outstanding |
Carrying Value |
Liquidation
Preference |
Common Stock
Issuable Upon Conversion |
||||||||||||||||
Series A Preferred Stock |
1,265,100 | 971,722 | $ | 972 | $ | 972 | 971,722 | |||||||||||||
Series B Preferred Stock |
470,037 | 470,037 | 47,549 | 27,972 | 470,037 | |||||||||||||||
Series B-1 Preferred Stock |
132,749 | 132,749 | 13,429 | 7,900 | 132,749 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,867,886 | 1,574,508 | $ | 61,950 | $ | 36,844 | 1,574,508 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
In the three months ended March 31, 2017, the Company recorded an adjustment of $11.8 million to the carrying value of Series B and B-1 Preferred Stock, with a corresponding offset to additional paid-in capital and accumulated deficit representing the change in the redemption value from December 31, 2016. In the three months ended March 31, 2018, the Company recorded an adjustment of $11.0 million to the carrying value of Series B and B-1 Preferred Stock, with a corresponding offset to additional paid-in capital and accumulated deficit representing the change in the redemption value from December 31, 2017.
7. Common Stock
On September 8, 2017, the Company amended and restated its Certificate of Incorporation. Upon effectiveness of the amended and restated Certificate of Incorporation, each previously issued share of common stock was reclassified as one share of Class B common stock and each outstanding right to acquire one share of common stock was reclassified as a right to acquire one share of Class B common stock. In addition, the total number of shares of common stock the Company shall have authority to issue is 3,750,595 shares of Class A common stock, par value $0.001 per share and 3,445,762 shares of Class B common stock, par value $0.001 per share.
Each share of Class A common stock entitles the holder to one vote for each share on all matters submitted to a vote of the Companys stockholders at all meetings of stockholders and written actions in lieu of meetings. Each share of Class B common stock entitles the holder to ten votes for each share on all matters submitted to a vote of the Companys stockholders at all meetings of stockholders and written actions in lieu of meetings.
Holders of both classes of common stock are entitled to receive dividends, when and if declared by the board of directors.
Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion shall occur upon the occurrence of a transfer, of such share of Class B common stock or at the date and time, or the occurrence of an event, specified by a vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Preferred Stock and Class B common stock, voting together as a single class. A transfer is described as a sale, assignment, transfer, conveyance, hypothecation or disposition of such share or any legal or beneficial interest in such share other than certain permitted transfers as described in the amended and restated Certificate of Incorporation, including a transfer to a holder of Preferred Stock. Each share of Class B common stock held by a stockholder shall automatically convert into one fully paid and nonassessable share of Class A common stock nine months after the death or incapacity of the holder of such Class B common stock.
In the three months ended March 31, 2017, the Company repurchased 167,652 of its common stock at a price of $55.05 per share for a total cost of $9.2 million. The repurchase was pursuant to a tender offer made by the Company to its stockholders, including employee stockholders. The price paid by the Company at the
F-43
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
settlement date of each tender was the estimated fair value of the Companys common stock at such settlement date. The Company immediately retired all outstanding treasury shares after the repurchase of common stock.
Acquisitions of treasury stock have been recorded at cost. Treasury stock held was reported as a deduction from stockholders equity (deficit). When the treasury stock is retired, the carrying value of the treasury stock is allocated between additional paid-in capital and retained earnings. The portion allocated to additional paid-in capital was limited to the sum of (i) all additional paid-in capital arising from previous retirements and net gains on sales of treasury stock of the same issue and (ii) the pro rata portion of additional paid-in capital and voluntary transfers of retained earnings on the same issue. To date, the Company has not reissued any treasury stock.
In March 2018, 17,550 shares of Class B common stock were automatically converted to 17,550 shares of Class A common stock pursuant to a transfer as described above. No additional consideration was paid or received by the Company in connection with this exchange.
8. Stock-Based Compensation
2008 Stock Incentive Plan
The Companys 2008 Stock Incentive Plan, as amended (the Plan), provides for the Company to issue equity awards to employees, consultants, advisors and directors. Under the Plan, the Company may grant stock-based incentive awards, including incentive or nonqualified stock options and restricted stock units, as determined by the board of directors.
As of March 31, 2018, the total number of shares of common stock that may be issued under the Plan was 1,055,089 shares, of which 179,653 shares remained available for future grant as of March 31, 2018. Shares of common stock issued upon exercise of stock options granted prior to September 8, 2017 will be issued as new Class B common stock. Shares of common stock issued upon exercise of stock options granted after September 8, 2017 will be issued as new Class A common stock. Options and restricted stock granted under the Plan vest over periods determined by the board of directors. Options granted under the Plan expire ten years from the date of the grant.
The exercise price for stock options granted is not less than the fair value of common shares as determined by the board of directors as of the date of grant. The Companys board of directors values the Companys common stock, taking into consideration its most recently available valuation of common stock performed by third parties as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.
Stock Option Valuation
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company, historically, has been a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on the historical volatility of its publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Companys stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect
F-44
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
to pay any cash dividends in the foreseeable future. No stock options were granted during the three months ended March 31, 2017. The relevant data used to determine the value of the stock option grants for employees and directors for the three months ended March 31, 2018 is as follows, presented on a weighted-average basis:
Three Months
Ended March 31, 2018 |
||||
Risk-free interest rate |
2.51 | % | ||
Expected volatility |
52.00 | % | ||
Expected dividend yield |
0 | % | ||
Expected term (in years) |
6.08 |
Stock Option Activity
The following table summarizes the Companys option activity since December 31, 2017:
Number
of Shares |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||||||||
(in years) | (in thousands) | |||||||||||||||
Outstanding as of December 31, 2017 |
441,945 | $ | 37.88 | 7.30 | $ | 8,895 | ||||||||||
Granted |
33,505 | $ | 58.01 | |||||||||||||
Exercised |
(48,364 | ) | $ | 11.75 | ||||||||||||
Forfeited |
(7,580 | ) | $ | 52.50 | ||||||||||||
|
|
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Outstanding as of March 31, 2018 |
419,506 | $ | 42.24 | 7.48 | $ | 17,242 | ||||||||||
|
|
|||||||||||||||
Vested and expected to vest as of March 31, 2018 |
381,162 | $ | 40.92 | 7.35 | $ | 16,168 | ||||||||||
Options exercisable as of March 31, 2018 |
230,432 | $ | 31.50 | 6.41 | $ | 11,946 |
As of March 31, 2018, outstanding options of 346,891 were for the purchase of Class B common stock and outstanding options of 72,615 were for the purchase of Class A common stock.
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Companys common stock for those stock options that had strike prices lower than the fair value of the Companys common stock.
The aggregate intrinsic value of options exercised during the three months ended March 31, 2018 was $3.5 million. The weighted average grant-date fair value of awards granted to employees and directors during the three months ended March 31, 2018 was $30.65 per share.
As of March 31, 2018, there were outstanding unvested service-based stock options held by non-employees for the purchase of 10,969 shares. Stock-based compensation expense for non-employees was less than $0.1 million for the three months ended March 31, 2017 and 2018. Amounts expensed during the remaining vesting period will be determined based on the fair value at the time of vesting.
Restricted Stock Units
There were no grants or forfeitures of performance-based RSUs for the three months ended March 31, 2017 and 2018.
F-45
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Stock-Based Compensation
The Company recorded stock-based compensation expense in the following expense categories of its statements of operations and comprehensive loss (in thousands):
Three Months
Ended March 31, |
||||||||
2017 | 2018 | |||||||
Cost of revenue |
$ | 6 | $ | 7 | ||||
Sales and marketing |
210 | 270 | ||||||
Research and development |
103 | 124 | ||||||
General and administrative |
152 | 166 | ||||||
|
|
|
|
|||||
$ | 471 | $ | 567 | |||||
|
|
|
|
As of March 31, 2018, unrecognized compensation expense related to unvested options was $5.5 million, which is expected to be recognized over a weighted average period of 3.5 years.
9. Income Taxes
2017 U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA) was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as a limitation of the deduction for net operating losses to 80% of current year taxable income and the elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction of the Companys deferred tax assets and liabilities, and a corresponding reduction to its valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA. The other provisions of the TCJA did not have a material impact on the December 31, 2017 financial statements.
Income Taxes
The Company had no income tax expense for the three months ended March 31, 2017 and 2018. The Company has no foreign operations and therefore, has not provided for any foreign taxes.
10. Commitments and Contingencies
Operating Leases
The Company leases office space in Cambridge, Massachusetts under a non-cancelable operating lease that expires in September 2024. The Company leases office space in Woburn, Massachusetts under a non-cancelable operating lease that expires in January 2022.
Lease incentives, payment escalations and rent holidays specified in the lease agreements are accrued or deferred as appropriate such that rent expense per square foot is recognized on a straight-line basis over the terms of occupancy. As of December 31, 2017 and March 31, 2018, the Company had a deferred rent liability of $0.9 million and $1.0 million, respectively.
As of December 31, 2017 and March 31, 2018, the Company maintained security deposits of $0.4 million with the landlords of its leases, which amounts are included in other assets on the Companys balance sheets.
F-46
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Future minimum lease payments under the operating leases as of March 31, 2018 are as follows (in thousands):
Year Ending December 31, |
||||
Remainder of 2018 |
$ | 1,211 | ||
2019 |
1,861 | |||
2020 |
1,996 | |||
2021 |
2,075 | |||
2022 |
1,911 | |||
Thereafter |
3,405 | |||
|
|
|||
$ | 12,459 | |||
|
|
In April 2017, the Company entered into a sublease agreement with a subtenant for 7,735 square feet of general office space. The sublease will terminate in June 2018. The Company recognized $0.1 million under the sublease as a reduction in rent expense in the statements of operations and comprehensive loss for the three months ended March 31, 2018. During the three months ended March 31, 2017 and 2018, the Company recorded rent expense of $0.3 million and $0.5 million, respectively.
Indemnification Agreements
In the normal course of business, the Company may provide indemnification of varying scope and terms to third parties and enters into commitments and guarantees (Agreements) under which it may be required to make payments. The duration of these Agreements varies, and in certain cases, is indefinite. Furthermore, many of these Agreements do not limit the Companys maximum potential payment exposure.
In addition, the Company has entered into indemnification agreements with members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
Through December 31, 2017 and March 31, 2018, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2017 and March 31, 2018, respectively.
Legal Proceedings
The Company, from time to time, is subject to legal proceedings and claims that arise in the normal course of its business. In the opinion of management, the amount of ultimate liability with respect to any such actions should not have a material adverse effect on the Companys results of operations of financial position. As of December 31, 2017 and March 31, 2018, the Company does not have any contingency reserves established for any litigation liabilities.
11. Net Loss and Unaudited Pro Forma Net Loss per Share
Net Loss per Share
The Company has two classes of common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. As a result, basic and diluted net income (loss)
F-47
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
per share of Class A common stock and share of Class B common stock are equivalent. Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
Three Months Ended March 31, | ||||||||
2017 | 2018 | |||||||
Numerator: |
||||||||
Net loss |
$ | (1,618 | ) | $ | (1,328 | ) | ||
Accretion of redeemable convertible preferred stock to redemption value |
(11,784 | ) | (11,013 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common stockholders |
$ | (13,402 | ) | $ | (12,341 | ) | ||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average common shares outstanding, basic and diluted |
1,157,913 | 1,088,401 | ||||||
|
|
|
|
|||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | (11.57 | ) | $ | (11.34 | ) | ||
|
|
|
|
The Companys potentially dilutive securities, which include redeemable convertible preferred stock, options and unvested restricted stock units, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share attributable to common stockholders. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
Three Months Ended March 31, | ||||||||
2017 | 2018 | |||||||
Redeemable convertible preferred stock (as converted to common stock) |
1,574,508 | 1,574,508 | ||||||
Options to purchase common stock |
435,160 | 419,506 | ||||||
Unvested restricted stock units |
24,000 | 30,312 | ||||||
|
|
|
|
|||||
2,033,668 | 2,024,326 | |||||||
|
|
|
|
Unaudited Pro Forma Net Loss per Share
The unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the three months ended March 31, 2018 has been prepared to give effect to adjustments arising upon the completion of a qualified initial public offering. The unaudited pro forma net loss attributable to common stockholders used in the calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders is the same as net loss per share attributable to common stockholders.
The unaudited pro forma basic and diluted weighted average common shares outstanding used in the calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the three months ended March 31, 2018 has been prepared to give effect, upon a qualified initial public offering, to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into common stock as if the proposed initial public offering had occurred on the later of January 1, 2017 or the issuance date of the redeemable convertible preferred stock.
F-48
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Unaudited pro forma basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
Three Months Ended
March 31, 2018 |
||||
Numerator: |
||||
Net loss attributable to common stockholders |
$ | |||
Accretion of redeemable convertible preferred stock to redemption value |
||||
|
|
|||
Pro forma net loss attributable to common stockholders |
$ | |||
|
|
|||
Denominator: |
||||
Weighted average common shares outstanding, basic and diluted |
||||
Pro forma adjustment to reflect automatic conversion of redeemable convertible preferred stock to common stock upon the completion of the proposed initial public offering |
||||
|
|
|||
Pro forma weighted average common shares outstanding, basic and diluted |
||||
|
|
|||
Pro forma net loss per share attributable to common stockholders, basic and diluted |
$ | |||
|
|
12. Retirement Plan
The Company has established a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. As currently established, the Company is not required to make any contributions to the 401(k) Plan. The Company did not make any matching contributions during the three months ended March 31, 2017 and contributed $0.1 million during the three months ended March 31, 2018.
13. Related Party Transactions
Related party referrals
The Company has, in the ordinary course of business, entered into arrangements with other companies who have shareholders in common with the Company. Pursuant to these arrangements, related-party affiliates receive payments for providing website visitor referrals. During the three months ended March 31, 2017 and 2018, the Company recorded sales and marketing expenses of $1.8 million and $2.3 million, respectively, related to these arrangements. During the three months ended March 31, 2017 and 2018, the Company paid $1.7 million and $2.7 million, respectively, related to these arrangements. As of December 31, 2017 and March 31, 2018, amounts due to related-party affiliates totaled $1.6 million and $1.2 million, respectively, which were included in accounts payable on the balance sheets.
14. Subsequent Events
For its interim financial statements as of March 31, 2018 and for the three months then ended, the Company evaluated subsequent events through May 9, 2018, the date on which those financial statements were issued.
On May 1, 2018, the Company granted options for the purchase of an aggregate of 106,500 shares of common stock, at an exercise price of $83.34 per share, to employees and directors. Also on May 1, 2018, the Company granted 12,998 restricted stock units to employees and directors. The aggregate grant-date fair value of the option and RSU awards was $5.4 million, which is expected to be recognized as stock-based compensation expense over a period of approximately four years.
F-49
Our Mission: to Make Finding Insurance Easy and More Personel, Saving Consumers and Providers Time & Money 7 YEARS@ EVERQUOTE 1M Quote Requests Auto Vertical Launch 2011 Agent Platform Launch Carrier Platform Launch 2014 Inc 5000 Fastest Growing Companies 10M Quote Request $100M Run Rate Achieved 2015 Globe Voted One of Boston Best Place to Work Home & Life Verticals Launch 2016 35M Quote Requests 2018 EverDrive 500k Downloads 2017 EverDrive Safe Driving App Release
shares
Class A Common Stock
Prospectus
J.P. Morgan
BofA Merrill Lynch
Canaccord Genuity
JMP Securities
Needham & Company
Oppenheimer & Co.
Raymond James
William Blair
, 2018
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock.
No action is being taken in any jurisdiction outside the United States to permit a public offering of the Class A common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.
Through and including , 2018 (the 25 th day after the date of this prospectus), all dealers that buy, sell or trade in our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with the offering described in the registration statement of which this prospectus forms a part, other than the underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the SEC registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the New York Stock Exchange listing fee.
Amount | ||||
SEC registration fee |
$ | 9,338 | ||
FINRA filing fee |
11,750 | |||
New York Stock Exchange listing fee |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Printing and engraving expenses |
* | |||
Blue Sky fees and expenses |
* | |||
Transfer agent and registrar fees and expenses |
* | |||
Miscellaneous expenses |
* | |||
|
|
|||
Total expenses |
$ | * | ||
|
|
* | To be filed by amendment. |
Item 14. Indemnification of Directors and Officers.
Section 102 of the General Corporation Law of the State of Delaware permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our restated certificate of incorporation that will be effective upon the closing of this offering provides that none of our directors shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.
Section 145 of the General Corporation Law of the State of Delaware provides that a corporation has the power to indemnify a director, officer, employee, or agent of the corporation, or a person serving at the request of the corporation for another corporation, partnership, joint venture, trust, or other enterprise in related capacities against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to be made a party to any threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
II-1
Our restated certificate of incorporation that will be effective upon the closing of this offering provides that we will indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of us) by reason of the fact that he or she is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee, or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an Indemnitee), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding and any appeal therefrom, if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.
Our restated certificate of incorporation that will be effective upon the closing of this offering provides that we will indemnify any Indemnitee who was or is a party to an action or suit by or in the right of us to procure a judgment in our favor by reason of the fact that the Indemnitee is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, and any appeal therefrom, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to us, unless a court determines that, despite such adjudication but in view of all of the circumstances, he or she is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified by us against all expenses (including attorneys fees) actually and reasonably incurred in connection therewith. Expenses must be advanced to an Indemnitee under certain circumstances.
In addition, we have entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements may require us, among other things, to indemnify each such director or executive officer for some expenses, including attorneys fees, judgments, fines and settlement amounts incurred by him in any action or proceeding arising out of his or her service as one of our directors or executive officers.
We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.
In any underwriting agreement we enter into in connection with the sale of Class A common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, or the Securities Act, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding shares of capital stock issued by us since January 1, 2015, that were not registered under the Securities Act. Also included is the consideration received by us for such shares and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.
(1) |
Under the 2008 Stock Incentive Plan, we granted (i) stock options to purchase an aggregate of 383,604 shares of our Class B common stock, with exercise prices ranging from $38.56 to $55.70 per share, (ii) stock options to purchase an aggregate of 180,865 shares of our Class A common stock, with |
II-2
exercise prices ranging from $55.70 to $83.34, (iii) 45,998 restricted stock units to be settled in shares of our Class A common stock. Under the 2008 Stock Incentive Plan, we issued 213,801 shares of Class B common stock and no shares of Class A common stock pursuant to the exercise of stock options for aggregate consideration of $2,865,475. |
(2) | Between June 2016 and December 2016, we issued and sold an aggregate of 602,786 shares of Series B preferred stock to 14 investors for an aggregate purchase price of approximately $35.9 million. |
(3) | In May 2017, pursuant to certain provisions in our amended and restated charter, an aggregate 132,749 shares of our Series B preferred stock, held by Savano Capital Partners II, LP and Savano-EverQuote LLC, were converted into an equal number of shares of Series B-1 preferred stock for no consideration. |
The stock options and restricted stock units, the common stock issued upon the exercise of such options and vesting of such restricted stock units described in paragraph (1) of this Item 15 were issued under the 2008 Stock Incentive Plan in reliance on either the exemption provided by Rule 701 promulgated under the Securities Act or the exemption provided under Regulation D under the Securities Act. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.
The offer, sale, and issuance of the securities described in paragraphs (2) and (3) of this Item 15 were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act because the issuance of the securities to the accredited investors did not involve a public offering. The recipients of the securities in these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions. The recipients of the securities in these transactions were accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) | Exhibits . |
EXHIBIT INDEX
Some of the agreements included as exhibits to the registration statement of which this prospectus forms a part contain representations and warranties by the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (1) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (2) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (3) may apply contract standards of materiality that are different from materiality under the applicable securities laws; and (4) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.
The Registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding contractual provisions are required to make the statements in the registration statement of which this prospectus forms a part not misleading.
II-3
* | To be filed by amendment. |
II-4
(b) | Financial Statement Schedules. |
No financial statement schedules have been submitted because they are not required or are not applicable or because the information required is included in the financial statements or the notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriter, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of the registration statement of which this prospectus forms a part in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement of which this prospectus forms a part as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused the registration statement of which this prospectus forms a part to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth of Massachusetts, on this 1 st day of June, 2018.
EVERQUOTE, INC. | ||
By: |
/s/ Seth Birnbaum |
|
Seth Birnbaum President and Chief Executive Officer |
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of EverQuote, Inc., hereby severally constitute and appoint Seth Birnbaum, John Wagner and David Mason, and each of them singly (with full power to each of them to act alone), as our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to the registration statement of which this prospectus forms a part (and any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registration statement of which this prospectus forms a part has been signed by the following persons in the capacities held on the dates indicated.
Signature |
Title |
Date |
||
/s/ Seth Birnbaum Seth Birnbaum |
President, Chief Executive Officer and Director (Principal Executive Officer) | June 1, 2018 | ||
/s/ John Wagner John Wagner |
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | June 1, 2018 | ||
/s/ David Blundin David Blundin |
Chairman of the Board of Directors | June 1, 2018 | ||
/s/ Sanju Bansal Sanju Bansal |
Director | June 1, 2018 | ||
/s/ John Lunny John Lunny |
Director | June 1, 2018 | ||
/s/ George Neble George Neble |
Director | June 1, 2018 | ||
/s/ John Shields John Shields |
Director | June 1, 2018 | ||
/s/ Mira Wilczek Mira Wilczek |
Director | June 1, 2018 |
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EVERQUOTE, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
EverQuote, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the General Corporation Law ),
DOES HEREBY CERTIFY:
1. That the name of this corporation is EverQuote, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on August 1, 2008 under the name AdHarmonics, Inc.
2. That an Amended and Restated Certificate of Incorporation (the Prior Certificate ) of this corporation was filed with the Secretary of State of the State of Delaware (the State Office ) on June 30, 2016, as amended pursuant to a Certificate of Amendment set forth as an attachment to a Certificate of Validation filed with the State Office on May 24, 2017 and pursuant to a Certificate of Amendment filed with the State Office on May 24, 2017 (the Prior Certificate, as so amended, the Existing Certificate ).
3. That the Board of Directors duly adopted resolutions proposing to amend and restate the Existing Certificate, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:
FIRST: The name of this corporation is EverQuote, Inc. (the Corporation ).
SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
FOURTH: Upon the effectiveness (the Effective Time ) of the filing of the Second Amended and Restated Certificate of Incorporation (this Certificate of Incorporation ) first inserting this sentence, each share of Common Stock (as defined in the Existing Certificate, the Prior Common Stock ) issued and outstanding immediately prior to the Effective Time shall, automatically and without any action on the part of the respective holders thereof, be reclassified as one (1) share of Class B Common Stock, $0.001 par value per share ( Class B Common Stock ). Each certificate (or a book entry or book entries, if the Prior Common Stock is not certificated) that immediately prior to the Effective Time represented shares of Prior Common Stock ( Prior Certificates ) shall thereafter represent that number of shares of Class B Common Stock into which the shares of Prior Common Stock represented by such Prior Certificate shall have been so reclassified. The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 7,196,357 shares of Common Stock, $0.001 par value per share ( Common Stock ) and (ii) 1,867,886 shares of Preferred Stock, $0.001 par value per share ( Preferred Stock ).
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. General .
1.1 3,750,595 shares of Common Stock are hereby designated Class A Common Stock (the Class A Common Stock ) and 3,445,762 shares of Common Stock are hereby designated Class B Common Stock. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
1.2 Identical Rights . Except as otherwise expressly provided herein or required by applicable law, shares of Class A Common Stock and Class B Common Stock shall have the same rights and privileges and rank equally, share ratably and be identical in all respects as to all matters, including, without limitation:
1.2.1 Dividends and Distributions . Shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, with respect to any Distribution paid or distributed by the Corporation, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class; provided, however, that in the event a Distribution is paid in the form of Class A Common Stock or Class B Common Stock (or rights to acquire such stock), then holders of Class A Common Stock shall receive Class A Common Stock (or rights to acquire such stock, as the case may be) and holders of Class B Common Stock shall receive Class B Common Stock (or rights to acquire such stock, as the case may be). As used herein, the term Distribution means (i) any dividend or distribution of cash, property or shares of the Corporations capital stock; and (ii) any distribution following or in connection with any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary.
2
1.2.2 Subdivision or Combination . If the Corporation in any manner subdivides or combines the outstanding shares of Class A Common Stock or Class B Common Stock, the outstanding shares of the other such class will be subdivided or combined in the same proportion and manner, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class.
1.3 Equal Treatment in a Combination Transaction . In the event of any Combination Transaction to which the Corporation is a party in which the shares of Class A Common Stock or Class B Common Stock will be exchanged for or converted into, or will receive a distribution of, cash or other property or securities of the Corporation or any other person or entity, each share of Common Stock shall be entitled to receive Equivalent Consideration (as defined herein) on a per share basis, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class.
1.4 Definitions . The following terms, where capitalized in this Section 1 , shall have the meanings ascribed to them in this Subsection 1.4 :
1.4.1 Acquiring Stockholder means a stockholder or group of stockholders of the Corporation that (i) merges or combines with the Corporation in such Combination Transaction or (ii) owns or controls a majority of another corporation or entity that merges or combines with the Corporation in such Combination Transaction.
1.4.2 Combination Transaction means any reorganization by way of share exchange, consolidation or merger or otherwise, in one transaction or series of related transactions, in which the Corporation is a constituent corporation or is a party with another entity if, as a result of such Combination Transaction, the voting securities of the Corporation that are outstanding immediately prior to the consummation of such Combination Transaction (other than any such securities that are held by an Acquiring Stockholder) do not represent, or are not converted into, securities of the surviving corporation of such Combination Transaction (or such surviving corporations parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such Combination Transaction, together possess a majority of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately after the consummation of such Combination Transaction, including securities of such surviving corporation (or its parent corporation, if applicable) that are held by the Acquiring Stockholder.
1.4.3 Equivalent Consideration means consideration in the same form, in the same amount and with the same voting rights on a per-share basis; provided, however, that for the avoidance of doubt, consideration to be paid or received by a holder of Class A Common Stock or Class B Common Stock in connection with any Combination Transaction pursuant to any employment, consulting, severance or other arrangement shall not be deemed to be consideration that is included in the determination of Equivalent Consideration.
3
2. Voting . Except as otherwise expressly provided herein or required by applicable law, the holders of Class A Common Stock and Class B Common Stock shall vote together as one class on all matters submitted to a vote of the stockholders. The holders of the Class A Common Stock are entitled to one (1) vote for each share of Class A Common Stock held at all meetings of stockholders (and written actions in lieu of meetings), and the holders of the Class B Common Stock are entitled to ten (10) votes for each share of Class B Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). Notwithstanding the foregoing, except as otherwise required by law, holders of Class A Common Stock and Class B Common Stock, as such, shall not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. There shall be no cumulative voting. The number of authorized shares of Common Stock, Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
3. Optional Conversion of Class B Common Stock .
3.1 Right to Convert .
3.1.1 Class B Common Stock Conversion . Each share of Class B Common Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into one fully paid and non-assessable share of Class A Common Stock as provided herein.
3.1.2 Termination of Conversion Right s. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the conversion rights set forth in this Section 3 shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Class B Common Stock.
3.2 Fractional Shares . No fractional shares of Class A Common Stock shall be issued upon conversion of the Class B Common Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Class A Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Class B Common Stock the holder is at the time converting into Class A Common Stock and the aggregate number of shares of Class A Common Stock issuable upon such conversion.
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3.3 Mechanics of Conversion .
3.3.1 Notice of Conversion . In order for a holder of Class B Common Stock to voluntarily convert shares of Class B Common Stock into shares of Class A Common Stock, such holder shall (a) provide written notice to the Corporations transfer agent at the office of the transfer agent for the Class B Common Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holders shares of Class B Common Stock and, if applicable, any event on which such conversion is contingent and (b) if such holders shares are certificated, surrender the certificate or certificates for such shares of Class B Common Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Class B Common Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holders name or the names of the nominees in which such holder wishes the shares of Class A Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the Class B Conversion Time ), and the shares of Class A Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Class B Conversion Time (i) issue and deliver to such holder of Class B Common Stock, or to his, her or its nominees, a certificate or certificates (or a book entry or book entries, if the Class A Common Stock is not certificated) for the number of full shares of Class A Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate (or book entry, if the Class B Common Stock is not certificated) for the number (if any) of the shares of Class B Common Stock represented by the surrendered certificate (or book entry, if the Class B Common Stock is not certificated) that were not converted into Class A Common Stock, (ii) pay in cash such amount as provided in Subsection 3.2 in lieu of any fraction of a share of Class A Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Class B Common Stock converted.
3.3.2 Reservation of Shares . The Corporation shall at all times when the Class B Common Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Class B Common Stock, such number of its duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Class B Common Stock; and if at any time the number of authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation.
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3.3.3 Effect of Conversion . All shares of Class B Common Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Class B Conversion Time, except only the right of the holders thereof to receive shares of Class A Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 3.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Class B Common Stock so converted shall be retired and cancelled and may not be reissued as shares of such class or series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Class B Common Stock accordingly.
4. Mandatory Conversion of Class B Common Stock .
4.1 Mandatory Conversion and Procedures . Each share of Class B Common Stock shall automatically be converted into one fully paid and non-assessable share of Class A Common Stock upon either (i) a Transfer, other than a Permitted Transfer, of such share of Class B Common Stock or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Series Preferred (as defined below) and Class B Common Stock, voting together as a single class. Such conversion shall occur automatically without the need for any further action by the holders of such shares and whether or not the certificates (if such shares are certificated) representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Class A Common Stock issuable upon such conversion unless the certificates evidencing such shares of Class B Common Stock (if such shares of Class B Common Stock surrendered for conversion were certificated) are either delivered to the Corporation or its transfer agent as provided below, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Class B Common Stock, the holders of Class B Common Stock shall surrender the certificates representing such shares (if such shares of Class B Common Stock are certificated) at the office of the Corporation or any transfer agent for the Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates (if such shares of Class B Common Stock were certificated) a certificate or certificates (or a book entry or book entries, if the Class A Common Stock is not certificated) for the number of shares of Class A Common Stock into which the shares of Class B Common Stock surrendered were convertible on the date on which such automatic conversion occurred.
4.2 Conversion Upon Death or Incapacity of a Class B Stockholder . Each share of Class B Common Stock held of record by a Class B Stockholder, or by such Class B Stockholders Permitted Transferees, shall automatically, without any further action, convert into one (1) fully paid and nonassessable share of Class A Common Stock upon nine months after the death or Incapacity of such Class B Stockholder.
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4.3 Definitions . The following terms, where capitalized in this Section 4 , shall have the meanings ascribed to them in this Subsection 4.3 :
4.3.1 Class B Stockholder means the initial registered holder of any shares of Class B Common Stock.
4.3.2 Family Member means, with respect to a Class B Stockholder, (x) the spouse, and any parent, child, sibling, parent-in-law or child-in-law of such Class B Stockholder, (y) any individual who shares a home (other than a domestic employee) with such Class B Stockholder or (z) any lineal descendent (including by adoption) of any of the foregoing individuals.
4.3.3 Incapacity means that such holder is incapable of managing his or her financial affairs under the criteria set forth in the applicable probate code and that the condition underlying such incapability can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months as determined by a licensed practitioner. In the event of a dispute regarding whether a Class B Stockholder has suffered an Incapacity, no Incapacity of such holder will be deemed to have occurred unless and until an affirmative ruling regarding such Incapacity has been made by a court of competent jurisdiction.
4.3.4 Parent means, with respect to any entity, any other entity that directly or indirectly owns or controls a majority of (a) the voting power of the voting securities and (b) economic ownership interests of such entity.
4.3.5 Permitted Transfer means a Transfer by a Class B Stockholder to any of the persons or entities listed in clauses (a) through (e) below (each, a Permitted Transferee ) and from any such Permitted Transferee back to such Class B Stockholder and/or any other Permitted Transferee established by or for such Class B Stockholder:
(a) a trust for the benefit of such Class B Stockholder or persons other than the Class B Stockholder so long as the Class B Stockholder (either alone or with any Family Member of such holder) has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust; provided such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such trust) to the Class B Stockholder and, provided, further, that in the event such Class B Stockholder (either alone or with any Family Member of such holder) no longer has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust, each share of Class B Common Stock then held by such trust shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock;
(b) a trust under the terms of which such Class B Stockholder has retained a qualified interest within the meaning of Section 2702(b)(1) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code ), and/or a reversionary interest so long as the Class B Stockholder (either alone or with any Family Member of such holder) has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust; provided, however, that in the event the Class B Stockholder (either alone or with any Family Member of such holder) no longer has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust, each share of Class B Common Stock then held by such trust shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock;
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(c) an Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or a pension, profit sharing, stock bonus or other type of plan or trust of which such Class B Stockholder is a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Internal Revenue Code; provided that in each case such Class B Stockholder (either alone or with any Family Member of such holder) has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held in such account, plan or trust, and provided, further, that in the event the Class B Stockholder (either alone or with any Family Member of such holder) no longer has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such account, plan or trust, each share of Class B Common Stock then held by such trust shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock;
(d) a corporation, partnership or limited liability company in which such Class B Stockholder (either alone or with any Family Member of such holder) directly, or indirectly through one or more Permitted Transferees, owns shares, partnership interests or membership interests, as applicable, with sufficient Voting Control in the corporation, partnership or limited liability company, as applicable, or otherwise has legally enforceable rights, such that the Class B Stockholder (either alone or with any Family Member of such holder) retains sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such corporation, partnership or limited liability company; provided that in the event the Class B Stockholder (either alone or with any Family Member of such holder) no longer owns sufficient shares, partnership interests or membership interests, as applicable, or no longer has sufficient legally enforceable rights to ensure the Class B Stockholder (either alone or with any Family Member of such holder) retains sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such corporation, partnership or limited liability company, as applicable, each share of Class B Common Stock then held by such corporation, partnership or limited liability company, as applicable, shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock; and
(e) any other entity which (i) is a direct or indirect wholly-owned subsidiary of such Class B Stockholder, (ii) is a Parent of such Class B Stockholder or (iii) is under common control with such Class B Stockholder.
4.3.6 A Transfer of a share of Class B Common Stock means any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law. A Transfer shall also include, without limitation, (i) a transfer of a share of Class B Common Stock to a broker or other nominee (regardless of whether or not there is a corresponding change in beneficial ownership) or (ii) the transfer of, or entering into a binding agreement with respect to, Voting Control over a share of Class B Common Stock by proxy or otherwise; provided, however, that the following shall not be considered a Transfer: (a) the grant of a proxy to a natural person designated or approved by (i) a Class B Stockholder and the Board of Directors of the Corporation to act as such holders
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proxy or (ii) a Class B Stockholder with specific direction to vote the shares as directed by such holder, and without discretion, as such holders proxy; (b) the grant of a proxy to officers or directors of the Corporation at the request of the Board of Directors of the Corporation in connection with actions to be taken at an annual or special meeting of stockholders; (c) the pledge of shares of Class B Common Stock by a Class B Stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction so long as the Class B Stockholder continues to exercise Voting Control over such pledged shares; provided, however, that a foreclosure on such shares of Class B Common Stock or other similar action by the pledgee shall constitute a Transfer; or (d) the fact that the spouse of any Class B Stockholder possesses or obtains an interest in such holders shares of Class B Common Stock arising solely by reason of the application of the community property laws of any jurisdiction, so long as no other event or circumstance shall exist or have occurred that constitutes a Transfer of such shares of Class B Common Stock. Notwithstanding anything in this Certificate of Incorporation to the contrary, a Transfer shall be deemed to have occurred with respect to a share of Class B Common Stock beneficially owned by a Class B Stockholder if there occurs a transfer of a majority of (x) the voting power of the voting securities or (y) the economic ownership interests of such Class B Stockholder or any Parent of such Class B Stockholder.
4.3.7 Voting Control with respect to a share of Class B Common Stock, and with respect to any other share of capital stock, partnership interest, limited liability company interest, interest in a trust or any other security in any other entity, means the exclusive power (whether directly or indirectly) to vote or direct the voting of such share of Class B Common Stock (or the voting of such other share, interest or security) by proxy, voting agreement, or otherwise.
5. Restrictions . So long as any shares of Class B Common Stock remain outstanding, the Corporation shall not, without the approval by vote or written consent of the holders of a majority of the shares of Class B Common Stock then outstanding, directly or indirectly, or by amendment (whether through merger, recapitalization, consolidation or otherwise):
5.1 issue any additional shares of Class B Common Stock (other than upon conversion of Series Preferred or exercise of options, or exercise or conversion of other securities exercisable for or convertible into, Class B Common Stock); or
5.2 amend, alter, or repeal of any provision of this Certificate of Incorporation or the Bylaws of the Corporation (including any filing of a Certificate of Designation), in a manner that modifies the voting or other powers, preferences, or other special rights or privileges, or restrictions of the Class B Common Stock so as to adversely affect the Class B Common Stock.
B. PREFERRED STOCK
1,265,100 shares of the authorized Preferred Stock of the Corporation are hereby designated Series A Preferred Stock (Series A Preferred ), 470,037 shares of the authorized Preferred Stock of the Corporation are hereby designated Series B Preferred Stock ( Series B Preferred ) and 132,749 shares of the authorized Preferred Stock of the Corporation are hereby designated as Series B-1 Preferred Stock ( Series B-1 Preferred ). The Series A Preferred, the Series B
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Preferred and the Series B-1 Preferred are hereafter collectively referred to as Series Preferred . The Series Preferred have the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to sections or subsections in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.
Upon the effectiveness of the filing of the Certificate of Amendment inserting this sentence, each outstanding share of Series B Preferred Stock that was issued pursuant to the terms of that certain Series B Preferred Stock Purchase Agreement, dated as of June 30, 2016, as amended including any additions to the Schedule of Purchasers thereto, by and among the Corporation and the investor(s) named therein, is converted into one share of Series B-1 Preferred Stock (which shares of Series B-1 Preferred Stock shall be validly issued, fully paid and nonassessable shares of capital stock of the Corporation).
Except as otherwise provided herein, the rights, preferences, powers, privileges and restrictions, qualifications and limitations of the Series B-1 Preferred Stock shall be identical in all respects to the rights, preferences, powers, privileges and restrictions, qualifications and limitations of the Series B Preferred Stock and the phrase Series B Preferred as used herein shall be deemed to also refer to Series B-1 Preferred Stock. Except as otherwise provided herein, the Series B-1 Preferred Stock shall rank pari passu with the Series B Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption. Except as required by law, the Series B Preferred Stock and the Series B-1 Preferred Stock shall vote together as a single class on all matters and, for the avoidance of doubt, shares of Series B-1 Preferred Stock shall be considered shares of Series B Preferred Stock for purposes of determining whether the Majority B Holders have approved an action in accordance Subsection 3.3 .
1. Dividends .
The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Class A Common Stock or Class B Common Stock payable in shares of Class A Common Stock or Class B Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Series Preferred then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series Preferred in an amount at least equal to (i) in the case of a dividend on Class A Common Stock or Class B Common Stock or any class or series that is convertible into Class A Common Stock or Class B Common Stock, that dividend per share of Series Preferred as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Class A Common Stock or Class B Common Stock and (B) the number of shares of Class A Common Stock or Class B Common Stock issuable upon conversion of a share of Series Preferred, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Class A Common Stock or Class B Common Stock, at a rate per share of Series Preferred determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such
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class or series) and (B) multiplying such fraction by an amount equal to Original Issue Price of such series of Series Preferred (as defined below); provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series Preferred pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series Preferred dividend. The Series A Original Issue Price shall mean $1.00 per share, the Series B Original Issue Price shall mean $59.51 per shares and the Series B-1 Original Issue Price shall mean $59.51 per share, each subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such series of Series Preferred.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .
2.1 Preferential Payments to Holders of Series B Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series B Preferred then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Series A Preferred and Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Series B Per Share Liquidation Payment (as defined below), plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series B Preferred been converted into Class A Common Stock or Class B Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the Series B Liquidation Amount). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Series B Preferred shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. All references to the Series B Per Share Liquidation Payment shall be deemed to refer to both the Series B Preferred Stock and the Series B-l Preferred Stock; provided that with respect to the Series B Preferred Stock, the Series B Per Share Liquidation Payment means the Series B Original Issue Price and, with respect to the Series B-1 Preferred Stock, the Series B Per Share Liquidation Payment means the Series B Per Share Liquidation Payment as adjusted from time to time pursuant to clause (iv)(B) of Subsection 3.3.3(d ) (and, with respect to both the Series B Preferred Stock and the Series B-1 Preferred Stock, as may otherwise be adjusted pursuant to the terms hereof).
2.2 Preferential Payments to Holders of Series A Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Series B Preferred, the holders of shares of Series A Preferred then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the Series A
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Original Issue Price, plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred the full amount to which they shall be entitled under this Subsection 2.2 , the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
2.3 Distribution of Remaining Assets . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Series Preferred, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of the shares of Series A Preferred and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Class A Common Stock or Class B Common Stock pursuant to the terms of the Certificate of Incorporation immediately prior to such liquidation, dissolution or winding up of the Corporation. The aggregate amount which a holder of a share of Series A Preferred is entitled to receive under Subsections 2.1 and 2.2 is hereinafter referred to as the Series A Liquidation Amount .
2.4 Deemed Liquidation Events .
2.4.1 Definition . Each of the following events shall be considered a Deemed Liquidation Event unless the holders of more than fifty percent (50%) of the then-outstanding Series B Preferred, which consent must include SCP (as defined in that certain Series B Preferred Stock Purchase Agreement, dated as of June 30, 2016, by and among the Corporation and the investor(s) named therein) for so long as SCP holds not less than 84,019 shares of Series B Preferred (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or similar recapitalization affecting such shares) (the Majority B Holders ), and the holders of a majority of the then outstanding shares of Series A Preferred, consenting as separate classes, elect otherwise by written notice sent to the Corporation at least five (5) days prior to the effective date of any such event:
(a) a merger or consolidation in which
(i) | the Corporation is a constituent party or |
(ii) | a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, |
except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or
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(b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
For the avoidance of doubt and without limiting the generality of the third paragraph of Section B of this Article Fourth, (i) the references in this Subsection 2.4.1 to Series B Preferred shall be deemed to include any shares of Series B-1 Preferred Stock and (ii) the conversion of certain shares of Series B Preferred Stock into shares of Series B-1 Preferred Stock effected by the Certificate of Amendment inserting this sentence shall not be deemed to result in SCP holding less than 84,020 shares of Series B Preferred.
2.4.2 Effecting a Deemed Liquidation Event .
(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.4.1(a)(i) unless the agreement or plan of merger or consolidation for such transaction (the Merger Agreement ) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 , 2.2 and 2.3 .
(b) In the event of a Deemed Liquidation Event referred to in Subsection 2.4.1(a)(ii) or 2.4.1(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Series Preferred no later than the ninetieth (90 th ) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause; (ii) to require the redemption of such shares of Series Preferred, and (iii) if the holders of a majority of the then outstanding shares of Series A Preferred or the Majority B Holders so request in a written instrument delivered to the Corporation not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the Available Proceeds ), on the one hundred fiftieth (150 th ) day after such Deemed Liquidation Event, to redeem all outstanding shares of Series Preferred at a price per share equal to the Series A Liquidation Amount and Series B Liquidation Amount, as applicable. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Series Preferred, the Corporation shall ratably redeem each holders shares of Series B Preferred to the fullest extent of such Available Proceeds, and shall redeem the remaining shares of Series Preferred as soon as it may lawfully do so under Delaware law
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governing distributions to stockholders. The provisions of Section 6 shall apply, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of the Series Preferred pursuant to this Subsection 2.4.2(b) . Prior to the distribution or redemption provided for in this Subsection 2.4.2(b) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event.
2.4.3 Amount Deemed Paid or Distributed . The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.
2.4.4 Allocation of Escrow and Contingent Consideration . In the event of a Deemed Liquidation Event pursuant to Subsection 2.4.1(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the Additional Consideration ), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the Initial Consideration ) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 , 2.2 and 2.3 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 , 2.2 and 2.3 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.4.4 , consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
3. Voting .
3.1 General . On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series Preferred shall be entitled to cast the number of votes equal to (i) the number of whole shares of Class B Common Stock into which the shares of Series Preferred held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter multiplied by (ii) the number of votes per share of Class B Common Stock pursuant to Article Fourth Section A.2 above. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series Preferred shall vote together with the holders of Class A Common Stock and Class B Common Stock as a single class.
3.2 Election of Directors . The holders of record of a majority of the then outstanding shares of Series A Preferred shall be entitled to elect two (2) directors of the Corporation (the Series Preferred Directors ). The holders of record of the shares of Class A Common Stock and Class B Common Stock, and of any other class or series of voting stock (including the Series Preferred) exclusively and voting together as a single class on an as-if
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converted to Class B Common Stock basis, as applicable, shall be entitled to elect the balance of the total number of directors of the Corporation. Any director elected as provided in the preceding sentences may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2 , a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2 . The rights of the holders of the Series Preferred under the first sentence of this Subsection 3.2 shall terminate on the first date following the Series B Original Issue Date (as defined below) on which there are no issued and outstanding shares of Series Preferred.
3.3 Series B Preferred Protective Provisions . At any time when shares of Series B Preferred are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the Majority B Holders, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio , and of no force or effect:
3.3.1 amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series B Preferred;
3.3.2 create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock that rank senior to the Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;
3.3.3 create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock unless:
(a) such securities rank junior to the Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;
(b) (i) such securities rank pari passu to the Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption and (ii) the purchase price per share of such securities is at least one and one-half times (1.5x) the Series B Original Issue Price;
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(c) (i) such securities rank pari passu to the Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, (ii) the purchase price per share of such securities is at least the Series B Original Issue Price (provided that this clause (ii) shall only be applicable for a period beginning on the Series B Original Issue Date and ending on the date that is eighteen (18) months following such date), (iii) the aggregate purchase price of such securities is less than or equal to $35,000,000 minus the Original Aggregate B Preference in the aggregate, and (iv) such securities are otherwise issued on substantially similar terms as the Series B Preferred (for the avoidance of doubt, the Series B Preferred itself satisfies subclauses (i) and (iv) of this Section 3.3.4(c));
(d) (i) such securities rank pari passu to the Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, (ii) the aggregate purchase price of such securities is greater than $35,000,000 minus the Original Aggregate B Preference, (iii) the purchase price per share of such securities is less than one and one-half times (1.5x) the Series B Original Issue Price and (iv) the Corporation issues written notice to the holders of the then outstanding shares of Series B Preferred prior to issuing any such securities and causes this certificate of incorporation to be amended and restated immediately prior to such issuance to: (A) provide that all shares of Series B Preferred then outstanding that were issued pursuant to the terms of that certain Series B Preferred Stock Purchase Agreement, dated as of June 30, 2016, by and among the Corporation and the investor(s) named therein (such investor(s), the Original B Purchasers ), are converted into a subseries of Series B Preferred (the Series B-1 Preferred Stock ) and (B) provide that such subseries has an adjusted liquidation preference per share that is increased above the Series B Per Share Liquidation Payment then in effect (but never decreased) to a liquidation preference per share equal to the product of the original Series B Per Share Liquidation Amount multiplied by a fraction, (x) the numerator of which is equal to the amount by which the aggregate liquidation preference in respect of all shares issued in reliance on this Subsection 3.3.3(d) and under the above Subsection 3.3.3(c) is greater than the Original Aggregate B Preference and (y) the denominator of which is equal to $35,000,000 minus the Original Aggregate B Preference; provided , that in no event shall any adjustment to Series B Per Share Liquidation Payment result in the holders of all Series B Preferred issued to the Original B Purchasers receiving upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event pursuant to Subsection 2.1(i) above, an aggregate amount greater than the product of (x) the Series B Per Share Liquidation Amount in respect of Series B Preferred issued to the Original B Purchasers (before giving effect to any adjustment pursuant hereto) multiplied by (y) all outstanding shares of Series B-1 Preferred Stock. The Original Aggregate B Preference means the aggregate liquidation preference of outstanding shares of Series B Preferred issued to the Original Series B Purchasers calculated at the initial Series B Per Share Liquidation Payment on the date hereof. For the sake of clarity, the foregoing adjustment shall not affect the right of the holders of Series B Preferred to receive an aggregate amount greater than the Aggregate Series B Purchase Price, plus declared and unpaid dividends, pursuant to Subsection 2.1(ii) above. For the avoidance of doubt, all references to Series B Preferred issued pursuant to the terms of that certain Series B Preferred Stock Purchase Agreement, dated as of June 30, 2016, as amended, including by any amendments to the Schedule of Purchasers thereto, by and among the Corporation and the Original B Purchasers shall include any shares of any other series of Preferred Stock issued upon conversion or exchange of such shares with an adjusted liquidation preference calculated in accordance with the formula set forth in this paragraph;
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3.3.4 (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series B Preferred in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series B Preferred in respect of any such right, preference, or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series B Preferred in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series B Preferred in respect of any such right, preference or privilege;
3.3.5 (a) purchase or redeem (or permit any subsidiary to purchase or redeem), or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series Preferred as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock, (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof, or (iv) repurchases of stock from existing stockholders for aggregate proceeds of no more $5,000,000.00 on or before January 31, 2017 at a price per share not to exceed $55.05 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or similar recapitalization affecting such shares), or (b) repay the principal and accrued interest pursuant to the Link Debt (as defined below) (or any other indebtedness for borrowed money held by Link) earlier than the amortization schedule in effect on the Series B Original Issue Date; provided, that with respect to the foregoing clause (b), if the Corporation has achieved the Trailing 12 Months Financial Test (as defined below) over any prior trailing twelve (12) month period ending on or after December 31, 2016 (the Base Year ), the Corporation may use up to fifty percent (50%) of the Free Cash Flow (as defined below) generated by the Corporation in such applicable prior trailing twelve (12) month period for any such purchase, redemption, dividend or accelerated debt repayment without the consent of the Majority B Holders; provided further, that with respect to foregoing clauses (a) and (b), if (x) the Corporation has raised additional debt on terms no less favorable than the terms of the current Link Debt, the Corporation shall be free to use the proceeds from such additional debt financing(s) for any such purchase, redemption, dividend or accelerated debt repayment without the consent of the Majority B Holders or (y) the Corporation has raised proceeds from equity financings, it can use the proceeds from such equity financings to purchase or redeem (or permit any subsidiary to purchase or redeem) any shares of capital stock of the Corporation without the consent of the Majority B Holders. If the Corporation intends to use any portion of the Free Cash Flow for the purchase, redemption, dividend or accelerated debt repayment in accordance with this Subsection 3.3.5 , the Corporation shall send written notice to the holders of Series B Preferred (the Financial Test Notice ), certified by the Corporations chief financial officer, supporting in reasonable detail how the Corporation achieved the Trailing 12 Months Financial Test (as defined below). The Corporation shall not use any portion of the Free Cash Flow for such purchase, redemption, dividend or quicker debt repayment until: (i) the Majority B Holders have agreed to the use of such Free Cash Flow (or has not objected within 15 days of receiving such Financial Test Notice) or (ii) until the Auditor (as defined below) has verified the calculation. If the Majority B Holders object to the calculation of the Trailing 12 Months
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Financial Test set forth in the Financial Test Notice by delivering written notice to the Corporation within fifteen (15) days of such holders deemed receipt of the Financial Test Notice (the Financial Test Notice Objection ) then the Corporations then-primary independent public accounting firm (or any other regional or national accounting firm) (the Auditor ) which shall calculate the Trailing 12 Months Financial Test. After the Auditors determination of such Trailing 12 Months Financial Test, the Corporation shall send prompt written notice (the Auditor Calculation Notice ) to the holders of the Series B Preferred notifying them of the calculation of the 12 Months Trailing Financial Test determined by the Auditor pursuant to this Subsection 3.3.6 . The calculation of the Trailing 12 Months Financial Test set forth in the Auditor Valuation Notice, shall be binding on the Corporation. If the 12 Months Financial Test set forth in the Auditor Valuation Notice is greater than or equal to the 12 Months Financial Test as set forth in the Financial Test Notice, the reasonable cost of the Auditor (the Auditor Expense ) shall be paid by the Corporation.
For the purposes of this Subsection 3.3.6 :
(A) EBITDA means earnings before interest taxes, stock-based compensation changes, depreciation and amortization, as measured by GAAP (as defined below);
(B) Free Cash Flow means EBITDA, but net of any Link Debt and any Bridge Bank term loan principal payments, interest and taxes paid or accrued related to such fiscal year, as measured by GAAP;
(C) GAAP means generally accepted accounting principles in the United States;
(D) Link Debt means the outstanding notes, as amended, held by Link Ventures, LLLP ( Link ) with an aggregate principal amount of approximately $3,619,000 as of May 31, 2016, as more particularly set forth on the amortization schedule accompanying such notes; and
(D) Trailing 12 Months Financial Test means achievement of each of the following two (2) financial tests measured over the prior twelve (12) month trailing period:
(i) the Corporation has achieved a minimum of $5 million of EBITDA (with each successive quarter after December 31, 2016, such $5 million dollar threshold shall be deemed increased to the extent of the percentage increase, if any, in gross revenue during such prior twelve (12) month trailing period as compared to the gross revenue of the Base Year); and
(ii) the Corporation has achieved at least ninety (90%) of the Corporations budgeted gross revenue and EBITDA for such prior twelve (12) month trailing period (in accordance with the operating budget most recently approved by the Corporations Board of Directors and in place for those months included in such prior twelve (12) month trailing period). For the avoidance of doubt, actual results for any month (if included any mid-year budget) shall never be included in such prior twelve (12) month trailing period for purposes of the foregoing testing, but rather the most recent budgeted amount prior to achieving such actual results shall be the comparator.
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3.4 Series A Preferred Protective Provisions . At any time when shares of Series A Preferred are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series A Preferred, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio , and of no force or effect:
3.4.1 authorize or issue, or obligate itself to issue, any equity security (including any other security convertible into or exercisable for or exchangeable for any such equity security and equity securities issued in connection with debt securities), other than issuances of equity securities to employees, directors, consultants and other services providers for the primary purpose of soliciting or retaining their services pursuant to plans or agreements approved by the Board of Directors of the Corporation;
3.4.2 increase or decrease the authorized number of directors of the Corporation;
3.4.3 amend, alter or repeal any provision of this Certificate of Incorporation or Bylaws of the Corporation in any manner, whether by merger or otherwise;
3.4.4 increase or decrease the total authorized number of Common Stock or Preferred Stock;
3.4.5 redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided , however , that this restriction shall not apply to: (i) the repurchase of shares of Common Stock from employees, officers, director, consultants or other persons performing services for the Corporation or any of its subsidiaries pursuant to agreements under which the Corporation has the option to repurchase such shares upon the occurrence of certain events and (ii) the repurchase or redemption of shares of Series Preferred pursuant to Section 6 ;
3.4.6 pay, declare or authorize any dividend on any shares of Common Stock or Preferred Stock;
3.4.7 change, alter, amend or otherwise modify the rights, preferences or privileges of the Preferred Stock; or
3.4.8 consummate any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event.
4. Optional Conversion .
The holders of the Series Preferred shall have conversion rights as follows (the Conversion Rights ):
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4.1 Right to Convert .
4.1.1 Conversion Ratio . Each share of Series Preferred shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Class A Common Stock or Class B Common Stock as is determined by dividing the applicable Original Issue Price by such applicable Conversion Price (as defined below) in effect at the time of conversion. The Series A Conversion Price shall initially be equal to $1.00 per share, the Series B Conversion Price shall initially be equal to $59.51 per share and the Series B-1 Conversion Price shall initially be equal to $59.51 per share. The Series A Conversion Price, Series B Conversion Price and Series B-1 Conversion Price are collectively referred to herein as the Series Preferred Conversion Prices and such respective Series Preferred Conversion Prices, and the rate at which shares of Series Preferred may be converted into shares of Common Stock, shall be subject to adjustment as provided below.
4.1.2 Termination of Conversion Rights . In the event of a notice of redemption of any shares of Series Preferred pursuant to Section 6 , the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series Preferred.
4.2 Fractional Shares . No fractional shares of Class A Common Stock or Class B Common Stock shall be issued upon conversion of the Series Preferred. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Class A Common Stock or Class B Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series Preferred the holder is at the time converting into Class A Common Stock or Class B Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
4.3 Mechanics of Conversion .
4.3.1 Notice of Conversion . In order for a holder of Series Preferred to voluntarily convert shares of Series Preferred into shares of Class A Common Stock or Class B Common Stock, such holder shall (a) provide written notice to the Corporations transfer agent at the office of the transfer agent for the Series Preferred (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holders shares of Series Preferred and, if applicable, any event on which such conversion is contingent and (b), if such holders shares are certificated, surrender the certificate or certificates for such shares of Series Preferred (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series Preferred (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holders name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or
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instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the Conversion Time ), and the shares of Class A Common Stock or Class B Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Series Preferred, or to his, her or its nominees, a certificate or certificates for the number of full shares of Class A Common Stock or Class B Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Series Preferred represented by the surrendered certificate that were not converted into Class A Common Stock or Class B Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Class A Common Stock or Class B Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Series Preferred converted.
4.3.2 Reservation of Shares . The Corporation shall at all times when the Series Preferred shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series Preferred, such number of its duly authorized shares of Class A Common Stock and Class B Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series Preferred; and if at any time the number of authorized but unissued shares of Class A Common Stock and Class B Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock and Class B Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Conversion Price of such series of Series Preferred below the then par value of the shares of Class A Common Stock or Class B Common Stock issuable upon conversion of such series of the Series Preferred, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Class A Common Stock or Class B Common Stock at such adjusted Conversion Price of such series of Series Preferred.
4.3.3 Effect of Conversion . All shares of Series Preferred which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Class A Common Stock or Class B Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Series Preferred so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of such series of Series Preferred accordingly.
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4.3.4 No Further Adjustment . Upon any such conversion, no adjustment to the Conversion Price of such series of Series Preferred shall be made for any declared but unpaid dividends on the Series Preferred surrendered for conversion or on the Class A Common Stock or Class B Common Stock delivered upon conversion.
4.3.5 Taxes . The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Class A Common Stock or Class B Common Stock upon conversion of shares of Series Preferred pursuant to this Section 4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Class A Common Stock or Class B Common Stock in a name other than that in which the shares of Series Preferred so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4 Adjustments to Series Preferred Conversion Price for Diluting Issues .
4.4.1 Special Definitions . For purposes of this Article Fourth, the following definitions shall apply:
(a) Affiliates shall mean, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
(b) Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(c) Person shall mean any individual, corporation, partnership, trust, limited liability company, association or other entity.
(d) Series B Original Issue Date shall mean the date on which the first share of Series B Preferred was issued.
(e) Convertible Securities shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(f) Additional Shares of Common Stock shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Series B Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, Exempted Securities ):
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(i) | shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series Preferred; |
(ii) | shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 4.5 , 4.6 , 4.7 or 4.8 ; |
(iii) | shares of Common Stock, including Options therefor, issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to the Corporations 2008 Stock Incentive Plan, as amended from time to time, as approved by the Board of Directors of the Corporation (as well as any shares of Common Stock, including Options therefor, issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to any substantially similar successor plan adopted in light of the Corporations 2008 Stock Incentive Plan near-term expiration); |
(iv) | shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors of the Corporation, excluding such issuances to Link or its Affiliates; |
(v) | shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Corporation, excluding such issuances to Link or its Affiliates; |
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(vi) | shares of Common Stock, Options or Convertible Securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided that such issuances are approved by the Board of Directors of the Corporation, excluding such issuances to Link or its Affiliates; or |
(vii) | shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors of the Corporation, excluding such issuances to Link or its Affiliates. |
4.4.2 No Adjustment of Series Preferred Conversion Price . No adjustment in the Series Preferred Conversion Price for such series of Series Preferred shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of a majority of the then outstanding shares of such series of Series Preferred agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3 Deemed Issue of Additional Shares of Common Stock .
(a) If the Corporation at any time or from time to time after the Series B Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price of such series of Series Preferred pursuant to the terms of Subsection 4.4.4 , are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange,
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then, effective upon such increase or decrease becoming effective, the Series Preferred Conversion Price of each series of Series Preferred computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series Preferred Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing such Series Preferred Conversion Price to an amount which exceeds the lower of (i) such Series Preferred Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) such Series Preferred Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to such Series Preferred Conversion Price pursuant to the terms of Subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5 ) of the Additional Shares of Common Stock subject thereto was equal to or greater than such Series Preferred Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series B Original Issue Date), are revised after the Series B Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to such Series Preferred Conversion Price pursuant to the terms of Subsection 4.4.4 , such Series Preferred Conversion Price shall be readjusted to such Series Preferred Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to such Series Preferred Conversion Price provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as
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provided in clauses (b) and (c) of this Subsection 4.4.3) . If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to such Series Preferred Conversion Price that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to such Series Preferred Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
4.4.4 Adjustment of Series Preferred Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event the Corporation shall at any time after the Series B Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3 ), without consideration or for a consideration per share less than such Series Preferred Conversion Price in effect immediately prior to such issue, then such Series Preferred Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP 2 = CP 1 * (A + B) ÷ (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
(a) CP 2 shall mean such Series Preferred Conversion Price in effect immediately after such issue of Additional Shares of Common Stock
(b) CP 1 shall mean such Series Preferred Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
(c) A shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Series Preferred) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
(d) B shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and
(e) C shall mean the number of such Additional Shares of Common Stock issued in such transaction.
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4.4.5 Determination of Consideration . For purposes of this Subsection 4.4 , the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(a) | Cash and Property : Such consideration shall: |
(i) | insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest; |
(ii) | insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and |
(iii) | in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation. |
(b) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3 , relating to Options and Convertible Securities, shall be determined by dividing:
(i) | The total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by |
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(ii) | the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities. |
4.4.6 Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Shares of Class A Common Stock or Class B Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to such Series Preferred Conversion Price pursuant to the terms of Subsection 4.4.4 then, upon the final such issuance, such Series Preferred Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
4.5 Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Series B Original Issue Date effect a subdivision of the outstanding Class A Common Stock or Class B Common Stock, such Series Preferred Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Class A Common Stock or Class B Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Class A Common Stock or Class B Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series B Original Issue Date combine the outstanding shares of Class A Common Stock or Class B Common Stock, such Series Preferred Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Class A Common Stock or Class B Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Class A Common Stock or Class B Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.6 Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Class A Common Stock or Class B Common Stock in additional shares of Class A Common Stock or Class B Common Stock, then and in each such event such Series Preferred Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying such Series Preferred Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of Class A Common Stock and Class B Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
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(2) the denominator of which shall be the total number of shares of Class A Common Stock and Class B Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, such Series Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter such Series Preferred Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of such Series Preferred simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of such Series Preferred had been converted into Class A Common Stock or Class B Common Stock on the date of such event.
4.7 Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of such Series Preferred shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of such Series Preferred had been converted into Class A Common Stock or Class B Common Stock on the date of such event.
4.8 Adjustment for Merger or Reorganization, etc . Subject to the provisions of Subsection 2.3 , if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Class A Common Stock or Class B Common Stock (but not the Series Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4 , 4.6 or 4.7) , then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Series Preferred shall thereafter be convertible in lieu of the Class A Common Stock or Class B Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Class A Common Stock or Class B Common Stock of the Corporation issuable upon conversion of one share of such Series Preferred immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of such Series Preferred, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of such Series Preferred Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series Preferred. For the avoidance of doubt, nothing in this Subsection 4.8 shall be construed as preventing the holders of Series Preferred from seeking any appraisal rights to which they are otherwise entitled under the DGCL in connection with a merger triggering an adjustment hereunder, nor shall this Subsection 4.8 be deemed conclusive evidence of the fair value of the shares of such series of Series Preferred in any such appraisal proceeding.
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4.9 Special IPO Adjustment to Series B Preferred Conversion Price . In connection with the IPO (as defined below), if the public offering price of the IPO (the Offering Price ) is less than one and one-half times (1.5x) the Series B Original Issue Price, the Series B Conversion Price then in effect shall be adjusted downward to an amount equal to the product of (a) the Series B Original Issue Price, multiplied by (b) the quotient of (i) the Offering Price, divided by (ii) one and one-half times (1.5x) the Series B Original Issue Price, all of the foregoing subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series. The downward adjustment of the Series B Conversion Price, if any, shall occur as of the effectiveness of the Corporations registration statement filed pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission in connection with the IPO. IPO means the Corporations first underwritten public offering of its Class A Common Stock or Class B Common Stock under the Securities Act of 1933, as amended. In connection with an IPO, if the Offering Price is less than one and one-half times (1.5x) the Series B Original Issue Price, the Series B-1 Conversion Price shall be adjusted in the same manner as is set out in this paragraph with respect to the Series B Conversion Price and, for the purpose of calculating such an adjustment to the Series B-1 Conversion Price, each reference in this paragraph to the Series B Conversion Price shall be deemed to refer to the Series B-1 Conversion Price and the reference in clause (a) of the first sentence of this paragraph to the Series B Original Issue Price (but not any other reference in this paragraph to the Series B Original Issue Price) shall be deemed to refer to the Series B-1 Original Issue Price.
4.10 Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of any Series Preferred Conversion Price pursuant to this Section 4 , the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series Preferred a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such Series Preferred is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series Preferred (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series Preferred Conversion Prices then in effect, and (ii) the number of shares of Class A Common Stock or Class B Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of each series of Series Preferred.
4.11 Notice of Record Date . In the event:
(a) the Corporation shall take a record of the holders of its Class A Common Stock or Class B Common Stock (or other capital stock or securities at the time issuable upon conversion of the Series Preferred) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
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(b) of any capital reorganization of the Corporation, any reclassification of the Class A Common Stock or Class B Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series Preferred a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Class A Common Stock or Class B Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Series Preferred) shall be entitled to exchange their shares of Class A Common Stock or Class B Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series Preferred and the Class A Common Stock or Class B Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.
5. Mandatory Conversion .
5.1 Trigger Events . Upon either (a) the closing of the sale of shares of Class A Common Stock or Class B Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $50 million of gross proceeds to the Corporation and listed on either the NASDAQ Stock Market or The New York Stock Exchange, or (b) the date and time, or the occurrence of an event, specified by vote or written consent of (i) the holders of a majority of the then outstanding shares of Series A Preferred, and (ii) the Majority B Holders, consenting as separate classes (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the Mandatory Conversion Time ), then (i) all outstanding shares of Series Preferred shall automatically be converted into shares of Class B Common Stock, at the then effective conversion rate for such series of Series Preferred as calculated pursuant to Subsection 4.1.1 . and (ii) such shares may not be reissued by the Corporation.
5.2 Procedural Requirements . All holders of record of shares of Series Preferred shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of such series of Series Preferred Stock pursuant to this Section 5 . Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Series Preferred in certificated form shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the
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Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Series Preferred converted pursuant to Subsection 5.1 , including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5.2 . As soon as practicable after the Mandatory Conversion Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for the Series Preferred, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Class B Common Stock issuable on such conversion in accordance with the provisions hereof and (b) pay cash as provided in Subsection 4.2 in lieu of any fraction of a share of Class B Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Series Preferred converted. Such converted Series Preferred shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series Preferred accordingly.
6. Redemption.
6.1 General . Unless prohibited by Delaware law governing distributions to stockholders, at the election of the holders of a majority of the outstanding shares of a series of Series Preferred, on or after the six (6) year anniversary of the Series B Original Issue Date shares of such applicable series of Series Preferred shall be redeemed by the Corporation at a per share price equal to the respective Series Preferred Original Issue Price for such series of Series Preferred, plus all declared but unpaid dividends thereon; provided, that with regard to Series B Preferred only, on or after the twelve (12) year anniversary of the Series B Original Issue Date, shares of Series B Preferred shall be redeemed by the Corporation at a per share price equal to the greater of (i) with respect to the Series B Preferred Stock, the Series B Preferred Original Issue Price and, with respect to the Series B-1 Preferred Stock, the Series B-1 Preferred Original Issue Price, and (ii) the Fair Market value (as defined below) of, as applicable, the Series B Preferred Stock or the Series B-1 Preferred Stock, plus all declared but unpaid dividends thereon (such applicable redemption price, the Redemption Price ), not more than sixty (60) days after receipt by the Corporation from the holders of a majority of the then outstanding shares of such series of Series Preferred, of written notice requesting redemption of all shares of such series of Series Preferred (the Redemption Request ). Notwithstanding anything herein to the contrary, for the purposes of making a Redemption Request pursuant to the preceding sentence and, except as otherwise provided in this Section 6 , for all other purposes of this Section 6, the Series B Preferred Stock and the Series B-1 Preferred Stock shall be considered together as a single class. Upon receipt of a Redemption Request, the Corporation shall apply all of its assets to any such redemption, and to no other corporate purpose, except to the extent prohibited by Delaware law governing distributions to stockholders. For purposes of this Subsection 6.1 , the Fair Market Value of the Series B Preferred shall mean the fair
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market value of the Series B Preferred, without discount for illiquidity or lack of marketability, minority position or transfer restrictions and as compared to comparable public and private companies, as determined in good faith by the Board and the Majority B Holders; provided that if no agreement is made within twenty (20) days of such applicable Redemption Request, the parties will use a mutually agreed upon nationally recognized appraiser (a Recognized Appraiser ); provided, further, that if the parties are unable to agree upon a Recognized Appraiser within ten (10) business days following such period, then the Majority B Holders may choose one of the following independent appraisers (an Independent Appraiser ): (i) Pacific Crest; (ii) Americas Growth Capital or (iii) Oppenheimer, or any successors thereto. The Recognized Appraiser or the Independent Appraiser, as applicable, will have ten (10) business days to determine Fair Market Value of the Series B Preferred. All appraisal costs incurred pursuant to the determination of Fair Market Value shall be shared equally between the Corporation and the holders of the Series B Preferred that delivered the Redemption Request. The date of each such redemption shall be referred to as a Redemption Date . On each Redemption Date, the Corporation shall redeem all such shares of such series of Series Preferred owned by each holder; provided, that if on any Redemption Date Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of such series of Series Preferred to be redeemed, the Corporation shall ratably redeem the maximum number of shares that it may redeem consistent with such law, and shall redeem the remaining shares as soon as it may lawfully do so under such law.
6.2 Redemption Notice . The Corporation shall send written notice of the mandatory redemption (the Redemption Notice ) to each holder of record of such series of Series Preferred not less than forty (40) days prior to each Redemption Date. Each Redemption Notice shall state:
(a) the number of shares of such series of Series Preferred held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;
(b) the Redemption Date and the Redemption Price;
(c) the date upon which the holders right to convert such shares terminates (as determined in accordance with Subsection 4.1 ); and
(d) for holders of shares in certificated form, that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Series Preferred to be redeemed.
6.3 Surrender of Certificates; Payment . On or before the applicable Redemption Date, each holder of shares of such series of Series Preferred to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section 4 , shall, if a holder of shares in certificated form, surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of such series of Series Preferred represented by a certificate are redeemed, a new certificate, instrument, or book entry representing the unredeemed shares of Series Preferred shall promptly be issued to such holder.
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6.4 Rights Subsequent to Redemption . If the Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of such series of Series Preferred to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that any certificates evidencing any of the shares of such series of Series Preferred so called for redemption shall not have been surrendered, all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of any such certificate or certificates therefor.
6.5 Remedies for Failure to Redeem . If the Corporation does not timely satisfy in full (and in cash), the Redemption Request for the Series B Preferred, on or after the twelve (12) year anniversary of the Series B Original Issue Date, for any reason, including on account of any limitations at law on the Corporations ability to timely pay the Redemption Price in full (in cash) (a Redemption Default ), then the Corporation shall be required to pay, during the Specified Period (as defined below), accrued interest at a rate of fifteen percent (15%) per annum on the aggregate unpaid Redemption Price for the Series B Preferred until all the Series B Preferred is redeemed, which interest shall be payable quarterly in arrears; provided, however, that in no event shall such interest exceed the maximum permitted rate of interest under applicable law (the Maximum Permitted Rate ). In the event that fulfillment of any provision hereof results in such rate of interest being in excess of the Maximum Permitted Rate, the amount of interest required to be paid hereunder shall automatically be reduced to eliminate such excess; provided, further, that any subsequent increase in the Maximum Permitted Rate shall be retroactively effective to the Redemption Date to the extent permitted by law. The Corporation shall use commercially reasonable efforts to obtain financing sufficient to effect the redemption of the Series B Preferred in full and shall waive, and use commercially reasonable to cause any other person to waive, any and all restrictions (including but not limited to rights of first refusal, co-sale rights, transfer restrictions, and/or preemptive rights of other stockholders) with respect to the Series B Preferred subject to the Redemption Request. At any time thereafter, when additional funds of the Corporation are legally available for the redemption of the Series B Preferred, such funds will immediately be used to redeem the Series B Preferred (including the interest thereon that is then due and payable) but that it has not redeemed or the holders of the Series B Preferred have not otherwise transferred or sold. The remedies described in this Section 6.5 shall be in addition to, and not be deemed a limitation of, any rights or remedies of the holders of the Series B Preferred under any other agreements. Specified Period shall mean the period beginning on first day following the occurrence of the Corporations failure to timely satisfy the Redemption Request and ending on the date on which the Redemption Price is paid in full on all shares of Series Preferred.
7. Redeemed or Otherwise Acquired Shares . Any shares of Series Preferred that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of such Series Preferred following redemption.
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8. Waiver . Any of the rights, powers, preferences and other terms of the Series Preferred set forth herein may be waived on behalf of all holders of such series of Series Preferred by the affirmative written consent or vote of the holders of a majority of the shares of such series of Series Preferred Stock then outstanding.
9. Notices . Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Series Preferred shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
FIFTH: Subject to any additional vote required by the Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
SIXTH: Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
TENTH: The following indemnification provisions shall apply to the persons enumerated below.
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1. Right to Indemnification of Directors and Officers . The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an Indemnified Person ) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding ), by reason of the fact that such person, or a person for whom such person is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys fees) reasonably incurred by such Indemnified Person in such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 3 of this Article Tenth, the Corporation shall be required to indemnify an Indemnified Person in connection with a Proceeding (or part thereof) commenced by such Indemnified Person only if the commencement of such Proceeding (or part thereof) by the Indemnified Person was authorized in advance by the Board of Directors.
2. Prepayment of Expenses of Directors and Officers . The Corporation shall pay the expenses (including attorneys fees) incurred by an Indemnified Person in defending any Proceeding in advance of its final disposition, provided , however , that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Indemnified Person to repay all amounts advanced if it should be ultimately determined that the Indemnified Person is not entitled to be indemnified under this Article Tenth or otherwise.
3. Claims by Directors and Officers . If a claim for indemnification or advancement of expenses under this Article Tenth is not paid in full within thirty (30) days after a written claim therefor by the Indemnified Person has been received by the Corporation, the Indemnified Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Indemnified Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
4. Indemnification of Employees and Agents . The Corporation may indemnify and advance expenses to any person who was or is made or is threatened to be made or is otherwise involved in any Proceeding by reason of the fact that such person, or a person for whom such person is the legal representative, is or was an employee or agent of the Corporation or, while an employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys fees) reasonably incurred by such person in connection with such Proceeding. The ultimate determination of entitlement to indemnification of persons who are non-director or officer employees or agents shall be made in such manner as is determined by the Board of Directors in its sole discretion. Notwithstanding the foregoing sentence, the Corporation shall not be required to indemnify a person in connection with a Proceeding initiated by such person if the Proceeding was not authorized in advance by the Board of Directors.
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5. Advancement of Expenses of Employees and Agents . The Corporation may pay the expenses (including attorneys fees) incurred by an employee or agent in defending any Proceeding in advance of its final disposition on such terms and conditions as may be determined by the Board of Directors.
6. Non-Exclusivity of Rights. The rights conferred on any person by this Article Tenth shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these by-laws, agreement, vote of stockholders or disinterested directors or otherwise.
7. Other Indemnificatio n. The Corporations obligation, if any, to indemnify any person who was or is serving at its request as a director, officer or employee of another Corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise shall be reduced by any amount such person may collect as indemnification from such other Corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise.
8. Insurance . The Board of Directors may, to the full extent permitted by applicable law as it presently exists, or may hereafter be amended from time to time, authorize an appropriate officer or officers to purchase and maintain at the Corporations expense insurance: (a) to indemnify the Corporation for any obligation which it incurs as a result of the indemnification of directors, officers and employees under the provisions of this Article Tenth; and (b) to indemnify or insure directors, officers and employees against liability in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this Article Tenth.
9. Amendment or Repeal . Any repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The rights provided hereunder shall inure to the benefit of any Indemnified Person and such persons heirs, executors and administrators.
ELEVENTH: The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An Excluded Opportunity is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Series Preferred or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, Covered Persons ), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Persons capacity as a director of the Corporation.
TWELFTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the
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Corporation or the Corporations stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporations certificate of incorporation or bylaws or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article Twelfth (including, without limitation, each portion of any sentence of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
* * *
4. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.
5. That this Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporations Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
38
IN WITNESS WHEREOF, this Second Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 7 th day of September, 2017.
By: |
/s/ Seth Birnbaum |
|
Seth Birnbaum, President |
FIRST AMENDMENT TO
THE SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
EVERQUOTE, INC.
(Pursuant to Sections 242 of the
General Corporation Law of the State of Delaware)
EverQuote, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the General Corporation Law),
DOES HEREBY CERTIFY:
1) That the name of this corporation is EverQuote, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on August 1, 2008 under the name AdHarmonics, Inc.;
2) That the Board of Directors duly adopted resolutions proposing to amend the Second Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor;
3) That the Board of Directors of the Corporation directed that such amendment be submitted to the stockholders of the Corporation for their consent and approval and, in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of Section 228 of the Delaware General Corporation Law (the DGCL ).
4) That said amendment was duly adopted in accordance with the provisions of Sections 242 and 228 of the DGCL; which resolutions and consent setting forth the proposed amendment and restatement is as follows:
RESOLVED , that the first paragraph of ARTICLE FOURTH(A)4.3.5(e) of the Certificate of Incorporation of this corporation be amended to read as follows:
(e) any other person or entity which (i) is a direct or indirect wholly-owned subsidiary of such Class B Stockholder, (ii) is a Parent of such Class B Stockholder, (iii) is under common control with such Class B Stockholder, or (iv) is the holder of Series Preferred on both the date of such transfer and as of the date of effectiveness of this Certificate of Amendment inserting this sentence.
1
IN WITNESS WHEREOF, this First Amendment to the Second Amended and Restated Certificate of Incorporation has been executed by the undersigned this 18 day of January 2018.
EVERQUOTE, INC. |
/s/ Seth Birnbaum |
Name: Seth Birnbaum |
Title: President |
2
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
EVERQUOTE, INC.
(f/k/a ADHARMONICS, INC.)
(a Delaware Corporation)
TABLE OF CONTENTS
Page | ||||||
ARTICLE I OFFICES |
1 | |||||
Section 1. |
Registered Office | 1 | ||||
Section 2. |
Other Offices | 1 | ||||
ARTICLE II CORPORATE SEAL |
1 | |||||
Section 3. |
Corporate Seal | 1 | ||||
ARTICLE III STOCKHOLDERS MEETINGS |
1 | |||||
Section 4. |
Place of Meetings | 1 | ||||
Section 5. |
Annual Meeting | 1 | ||||
Section 6. |
Special Meetings | 2 | ||||
Section 7. |
Notice of Meetings | 2 | ||||
Section 8. |
Quorum | 2 | ||||
Section 9. |
Adjournment and Notice of Adjourned Meetings | 3 | ||||
Section 10. |
Voting of Shares | 3 | ||||
Section 11. |
Joint Owners of Stock and Certain Holders | 4 | ||||
Section 12. |
Stockholders List | 5 | ||||
Section 13. |
Action Without a Meeting | 5 | ||||
ARTICLE IV BOARD OF DIRECTORS |
6 | |||||
Section 14. |
Number, Tenure and Qualifications | 6 | ||||
Section 15. |
General Powers | 6 | ||||
Section 16. |
Term of Directors | 6 | ||||
Section 17. |
Vacancies | 6 | ||||
Section 18. |
Resignation | 7 | ||||
Section 19. |
Removal | 7 | ||||
Section 20. |
Meetings | 7 | ||||
Section 21. |
Quorum and Voting Rights | 8 | ||||
Section 22. |
Action Without a Meeting | 9 | ||||
Section 23. |
Fees and Compensation | 9 |
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Section 24. |
Executive and Other Committees | 9 | ||||
Section 25. |
Organization | 10 | ||||
ARTICLE V OFFICERS |
10 | |||||
Section 26. |
Officers Designated, Number, Qualifications and Compensation | 10 | ||||
Section 27. |
Appointment, Term of Office, and Duties | 10 | ||||
Section 28. |
Authority | 11 | ||||
Section 29. |
Resignation | 11 | ||||
Section 30. |
Removal | 12 | ||||
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION |
12 | |||||
Section 31. |
Execution of Corporate Instruments | 12 | ||||
Section 32. |
Voting of Securities by the Corporation | 12 | ||||
ARTICLE VII STOCK |
13 | |||||
Section 33. |
Issuance, Form and Execution of Shares | 13 | ||||
Section 34. |
Lost Certificates | 13 | ||||
Section 35. |
Transfer of Shares | 13 | ||||
Section 36. |
Fixing of Record Date | 13 | ||||
Section 37. |
Holders of Record | 14 | ||||
Section 38. |
Shares Held for Account of Another | 14 | ||||
Section 39. |
Transfer Agents, Registrars and Paying Agents | 14 | ||||
Section 40. |
Consideration for Shares | 14 | ||||
ARTICLE VIII FISCAL YEAR |
14 | |||||
Section 41. |
Fiscal Year | 14 | ||||
ARTICLE IX INDEMNIFICATION |
15 | |||||
Section 42. |
Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents | 15 | ||||
ARTICLE X NOTICES |
17 | |||||
Section 43. |
Notices | 17 | ||||
ARTICLE XI AMENDMENTS |
18 | |||||
Section 44. |
Amendments | 18 |
ii
AMENDED AND RESTATED BYLAWS
OF
EVERQUOTE, INC.
(f/k/a ADHARMONICS, INC.)
(a Delaware Corporation)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of EverQuote, Inc. (the Corporation ) required by the Delaware General Corporation Laws (the DGCL ) to be maintained in Delaware shall be as set forth in the certificate of incorporation of the Corporation (the Certificate of Incorporation ), unless changed as provided by law.
Section 2. Other Offices . The principal office of the Corporation shall be located at 210 Broadway, Cambridge MA 02139. The Corporation may have such offices, either within or outside Delaware, as the board of directors of the Corporation (the Board ) may from time to time determine or as the business of the Corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal, if any, of the Corporation shall be in such form as adopted by the Board, and any officer of the Corporation may, when and as required, affix or impress the seal, or a facsimile thereof, to or on any instrument or document of the Corporation.
ARTICLE III
STOCKHOLDERS MEETINGS
Section 4. Place of Meetings. Each meeting of the stockholders shall be held at such place, either within or outside Delaware, as may be designated in the notice of meeting, or, if no place is designated in the notice, at the principal office of the Corporation if in Delaware or, if the principal office is not located in Delaware, at the registered office of the Corporation in Delaware; provided, however, that the Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211 of the DGCL.
Section 5. Annual Meeting. An annual meeting of the stockholders shall be held on such date as may be determined by the Board, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting is a legal holiday in Delaware, the meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting of the stockholders, or at any adjournment thereof, the Board shall cause the election to be held at a meeting of the stockholders to be held as soon thereafter as conveniently may be. Failure to hold an annual meeting as required by these Bylaws shall not invalidate any action taken by the Board or officers of the Corporation.
Section 6. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President or the Board, and shall be called by the President or the Board at the written, dated and executed demand of the holders of not less than one-tenth of all the votes of the Corporation entitled to be cast on any proposed issue to be considered. A written demand shall contain the purpose or purposes for which the meeting shall be held. Notice of the special meeting must be given within 30 days after the date of the call or demand in accordance with Section 7.
Section 7. Notice of Meetings. Except as otherwise required by law, written notice of each meeting of the stockholders stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be given, either personally (including delivery by private courier) or by first class, certified or registered mail, to each stockholder of record entitled to notice of such meeting, not less than 10 nor more than 60 days before the date of the meeting, except that if the authorized shares of the Corporation are to be increased, at least 30 days notice shall be given, and, if the sale, lease, exchange or other disposition of all or substantially all of the property and assets of the Corporation not in the usual and regular course of business is to be voted on, at least 20 days notice shall be given. Such notice shall be deemed to be given in person when delivered to the stockholder by telephone, telegraph, teletype, electronically transmitted facsimile or other form of wire or wireless communication or by mail or private carrier. If mailed, such notice shall be deemed to be given as to each stockholder when deposited in the United States mail, addressed to the stockholder at the stockholders address shown in the Corporations current record of stockholders, with postage thereon prepaid, but, if three successive notices mailed to the last-known address of any stockholder of record are returned as undeliverable, no further notices to such stockholder shall be necessary until another address for such stockholder is made known to the Corporation. Written notice to the Corporation may be addressed to its registered agent at its registered address or to the Corporation or its Secretary at its principal office. Notice is effective on the earliest of the date received, five days after mailing or the date shown on the return receipt, if applicable. If a meeting is adjourned to another time or place, notice need not be given if the time and place thereof are announced at the meeting, unless the adjournment is for more than 30 days or if after the adjournment a new record date is fixed, in either of which case notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with the foregoing provisions of this Section 7.
Whenever notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any stockholder, a waiver thereof in writing signed by the stockholder entitled to such notice, whether before, at or after the time stated therein, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, shall be equivalent to the giving of such notice. By attending a meeting, a stockholder (a) waives objection to lack of notice or defective notice of such meeting unless the stockholder, at the beginning of the meeting, objects to the holding of the meeting or the transacting of business at the meeting because of lack of notice or defective notice, and (b) waives objection to consideration at such meeting of a particular matter not within the purpose or purposes described in the notice of such meeting unless the stockholder objects to considering the matter when it is presented.
Section 8. Quorum. At all meetings of stockholders, shares of the Corporation representing a majority of the votes entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum with respect to each matter. If a quorum is present, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the vote of
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a greater proportion or number is otherwise required by applicable law or stock exchange rule, the Certificate of Incorporation or these Bylaws. Notwithstanding the foregoing, an amendment to the Certificate of Incorporation that adds, changes or deletes a greater quorum or voting requirement shall meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.
Section 9. Adjournment and Notice of Adjourned Meetings .
(a) Adjournment and Notice of Adjourned Meetings. In the absence of a quorum on any matter, shares representing a majority of the votes so represented may adjourn the meeting with respect to such matter from time to time for a period not to exceed 60 days at any one adjournment. At any such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting.
(b) Presence by Remote Means. If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(1) participate in a meeting of stockholders; and
(2) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.
Section 10. Voting of Shares .
(a) Rights. Subject to the provisions of Section 37, each outstanding share of record, regardless of class, is entitled to one vote, and each outstanding fractional share of record is entitled to a corresponding fractional vote, on each matter submitted to a vote of the stockholders either at a meeting thereof or pursuant to Section 13, except to the extent that the voting rights of the shares of any class or classes are limited, increased or denied by the Certificate of Incorporation as permitted by the Act. In the election of directors, each record holder of stock entitled to vote at such election shall have the right to vote the number of shares owned by him or her for as many persons as there are directors to be elected, and for whose election he or she has the right to vote.
(b) Proxies. At any meeting of the stockholders, a stockholder may vote by proxy. Without limiting the manner in which a stockholder may appoint a proxy to vote or otherwise act for the stockholder, the following shall constitute valid means of such appointment: (a) a stockholder may appoint a proxy by signing an appointment form, either personally or by the stockholders attorney-in-fact; or (b) a stockholder may appoint a proxy by transmitting or authorizing the transmission of a
3
telegram, teletype or other electronic transmission providing a written statement of the appointment to the proxy, to a proxy solicitor, proxy support service organization or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the Corporation; except that the transmitted appointment shall set forth or be transmitted with written evidence from which it can be determined that the stockholder transmitted or authorized the transmission of the appointment. Such appointment of a proxy shall be filed with the Corporation before or at the time of the meeting. No appointment of a proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the appointment form.
Section 11. Joint Owners of Stock and Certain Holders.
(a) Joint Owners. Shares standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, voting with respect to the shares shall have the following effects: (i) if only one person votes, his or her act binds all; (ii) if two or more persons vote, the act of the majority so voting binds all; (iii) if two or more persons vote, but the vote is evenly split on any particular matter, each faction may vote the shares in question proportionally, or any person voting the shares of a beneficiary, if any, may apply to any court of competent jurisdiction in Delaware to appoint an additional person to act with the persons so voting the shares, in which case the shares shall be voted as determined by a majority of such persons; and (iv) if a tenancy is held in unequal interests, a majority or even split for the purposes of subparagraph (iii) shall be a majority or even split in interest. The foregoing effects of voting shall not be applicable if the Secretary of the Corporation is given written notice of alternative voting provisions and is furnished with a copy of the instrument or order wherein the alternative voting provisions are stated.
(b) Shares Held by Another Corporation. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe or, in the absence of such provision, as the Board of such corporation may determine.
(c) Shares Held in Trust or by a Personal Representative. Shares held by an administrator, executor, guardian, conservator or other personal representative may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name.
(d) Shares Held by a Receiver. Shares standing in the name of a receiver may be voted by such receiver and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed.
(e) Pledged Shares. A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.
(f) Redeemable Shares Called for Redemption. Redeemable shares that have been called for redemption shall not be entitled to vote on any matter and shall not be deemed outstanding shares on and after the date on which written notice of redemption has been mailed to stockholders and a sum sufficient to redeem such shares has been deposited with a bank, trust company or other financial institution with irrevocable instruction and authority to pay the redemption price to the holders of the shares upon surrender of certificates therefor.
4
(g) Shares Held in a Fiduciary Capacity. The Corporation may vote any shares, including its own shares, held by it in a fiduciary capacity.
Section 12. Stockholders List. After fixing the record date, the officer or agent having charge of the stock transfer books for shares of the Corporation shall make a complete record of the stockholders entitled to be given notice of the meeting or any adjournment thereof. The list shall be arranged by voting groups and within each voting group by class or series of shares, shall be alphabetical within each class or series, and shall show the address of, and the number of shares of each class and series that are held by, each stockholder. For a period of 10 days before such meeting or two business days after notice of the meeting is given, whichever is earlier, this record shall be kept on file at the principal office of the Corporation, whether within or outside Delaware, and shall be subject to inspection by any stockholder or his or her agent or attorney, upon prior written request, for any purpose germane to the meeting at any time during usual business hours. Such record shall also be produced and kept open at the time and place of the meeting and any adjournment thereof and shall be subject to the inspection of any stockholder or his or her agent or attorney for any purpose germane to the meeting during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of the stockholders.
Section 13. Action Without a Meeting.
(a) Action by Written Consent of Stockholders. Any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the State of Delaware (by hand or by certified or registered mail, return receipt requested), to its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Such consent (which may be signed in counterparts) shall have the same force and effect as a vote of the stockholders and may be stated as such in any document. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders or members to take the action were delivered to the corporation by delivery to its registered office in the State of Delaware (by hand or by certified or registered mail, return receipt requested), to its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Unless the consent specifies a different effective date, action taken without a meeting pursuant to a consent in writing as provided herein shall be effective when the Corporation receives writings describing and consenting to the actions signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted on the subject matter. The record date for determining stockholders entitled to take action without a meeting or entitled to be given notice is the date a writing upon which the action is
5
taken is first received by the Corporation. All consents signed pursuant to this Section 13 shall be either delivered to the Corporation or received by the Corporation by electronically transmitted facsimile or other form of wire or wireless communication providing the Corporation with a complete copy thereof, including a copy of the signatures for inclusion in the minutes or for filing with the corporate records.
(b) Electronic Consent. A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (1) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (2) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board of Directors of the corporation.
ARTICLE IV
BOARD OF DIRECTORS
Section 14. Number, Tenure and Qualifications. The number of directors of the Corporation shall be as fixed from time to time by resolution of the Board or stockholders and, in the absence of such resolution, shall be five. Directors must be natural persons at least 21 years old but need not be residents of Delaware or stockholders of the Corporation.
Section 15. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board, except as otherwise provided in the Act, the Certificate of Incorporation or these Bylaws.
Section 16. Term of Directors. Except as provided in Section 17, directors shall be elected at each annual meeting of the stockholders. Each director shall hold office until the next annual meeting of the stockholders and thereafter until his or her successor shall have been elected and qualified, or until his or her earlier death, resignation or removal.
Section 17. Vacancies. Unless otherwise required in the Certificate of Incorporation, any vacancy occurring in the Board, including vacancies due to an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum, or by the affirmative vote of two directors if there are only two directors remaining, or by a sole remaining
6
director, or by the stockholders if there are no directors remaining. The term of a director elected by the directors in office to fill a vacancy expires at the next annual stockholders meeting at which directors are elected. The term of a director elected by the stockholders to fill a vacancy shall be the unexpired term of his or her predecessor in office; except that, if the directors predecessor had been elected by the directors in office to fill a vacancy, the term of a director elected by the stockholders shall be the unexpired term of the last predecessor elected by the stockholders. If the vacant office was held by a director elected by a voting group of stockholders: (a) if one or more of the remaining directors were elected by the same voting group, only such directors are entitled to vote to fill the vacancy if it is filled by directors, and they may do so by the affirmative vote of a majority of such directors remaining in office; and (b) only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the stockholders.
Section 18. Resignation. Any director may resign at any time by giving written notice to the Corporation. A directors resignation is effective when it is received by the Corporation unless the notice specifies a later effective date, and the acceptance of such resignation shall not be necessary to make it effective.
Section 19. Removal. At a meeting called expressly for that purpose, the entire Board or any lesser number may be removed, with or without cause, only if the number of votes cast in favor of removal exceeds the number of votes cast against removal by those shares then entitled to vote at an election of directors; except that if the holders of shares of any class of stock are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, the provisions of this Section 19 shall apply, with respect to the removal of a director or directors so elected by such class, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. Any reduction in the authorized number of directors shall not have the effect of shortening the term of any incumbent director unless such director is also removed from office in accordance with this Section 19.
Section 20. Meetings.
(a) Regular Meetings. A regular meeting of the Board shall be held immediately after and at the same place as the annual meeting of the stockholders, or as soon thereafter as conveniently may be, at the time and place, either within or outside Delaware, determined by the Board, for the purpose of electing officers and for the transaction of such other business as may come before the meeting. Failure to hold such meeting, however, shall not invalidate any action taken by any officer then or thereafter in office. The Board may provide, by resolution, the time and place, either within or outside Delaware, for the holding of additional regular meetings without other notice than such resolution.
(b) Special Meetings. Special meetings of the Board may be called by or at the request of the President or any two directors, or if the Corporation only has one director, then by the request of the President or the director. The person or persons authorized to call special meetings of the Board may fix any convenient place, either within or outside Delaware, as the place for holding any special meeting of the Board called by them.
(c) Meetings by Telephone. Unless otherwise provided by the Certificate of Incorporation, one or more members of the Board may participate in a meeting of the Board by, or the meeting may be conducted through the use of, any communications equipment by which all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at the meeting.
7
(d) Notice of Meetings. Notice of each meeting of the Board (except those regular meetings for which notice is not required) stating the place, day and hour of the meeting shall be given to each director at least two days prior thereto by the mailing of written notice by first class, certified or registered mail, or at least two days prior thereto by personal delivery (including delivery by private courier to the director or delivered to the last address of the director furnished by him or her to the Corporation for such purpose) of written notice or by telephone, telegraph, teletype, electronically transmitted facsimile or other form of wire or wireless communication, except that, in the case of a meeting to be held pursuant to Section 20(c), notice may be given by telephone one day prior thereto. The method of notice need not be the same to each director. Notice shall be deemed to be given at the earliest of (a) the date received, but, if the director is no longer at the address of record, then the date delivery was attempted; (b) five days after mailing; or (c) the date shown on the return receipt, if mailed by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. Neither the business to be transacted at nor the purpose of any meeting of the Board need be specified in the notice of such meeting unless otherwise required by statute.
(e) Waiver of Notice. Whenever notice is required by law, the Certificate of Incorporation or these Bylaws to be given to the directors, a waiver thereof in writing signed by the director entitled to such notice, whether before, at or after the time stated therein, shall be equivalent to the giving of such notice. Such waiver shall be delivered to the Corporation for filing with the corporate records, but such delivery and filing shall not be conditions of the effectiveness of the waiver. A directors attendance at, or participation in a meeting, waives any required notice to him or her of the meeting unless: (a) at the beginning of the meeting, or promptly upon his or her later arrival, the director objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice and does not thereafter vote for or assent to action taken at the meeting; or (b) if special notice was required of a particular purpose, the director objects to transacting business with respect to the purpose for which such special notice was required and does not thereafter vote for or assent to action taken at the meeting with respect to such purpose. Neither the business to be transacted at nor the purpose of any meeting of the Board need be specified in the waiver of notice of such meeting unless otherwise required by statute.
(f) Presumption of Assent. A director of the Corporation who is present at a meeting of the Board at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless the director: (a) objects at the beginning of the meeting, or promptly upon his or her arrival, to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to any action taken at the meeting; (b) contemporaneously requests that his or her dissent or abstention as to any specific action taken be entered in the minutes of such meeting; or (c) causes written notice of his or her dissent or abstention as to any specific action to be received by the presiding officer of such meeting before its adjournment or by the Corporation immediately after adjournment of such meeting. The right of dissent or abstention as to a specific action taken at a meeting of the Board is not available to a director who votes in favor of such action.
Section 21. Quorum and Voting Rights. Except as otherwise may be required by law, the Certificate of Incorporation or these Bylaws, a majority of the number of directors fixed in accordance with these Bylaws, present in person, shall constitute a quorum for the transaction of business at any meeting of the Board, and the vote of a majority of the directors present at a meeting at which a
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quorum is present shall be the act of the Board. If less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than an announcement at the meeting, until a quorum shall be present. No director may vote or act by proxy or power of attorney at any meeting of directors.
Section 22. Action Without a Meeting. Any action required or permitted to be taken at a meeting of the directors may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Such consent (which may be signed in counterparts) shall have the same force and effect as a unanimous vote of the directors and may be stated as such in any document. Unless the consent specifies a different effective date, action taken without a meeting pursuant to a consent in writing as provided herein is effective when all directors have signed the consent; however, the consent shall not be effective if, before all of the directors have signed the consent, any director has revoked his or her consent by a writing signed by the director and received by the Secretary or any other person authorized by these Bylaws or the Board to receive such a revocation. All consents signed pursuant to this Section 22 shall be delivered to the Secretary of the Corporation for inclusion in the minutes or for filing with the corporate records.
Section 23. Fees and Compensation. By resolution of the Board, a director may be paid his or her expenses, if any, of attendance at each meeting of the Board and each meeting of any committee of the Board of which he or she is a member and may be paid a fixed sum for attendance at each such meeting or a stated salary, or both a fixed sum and a stated salary. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
Section 24. Executive and Other Committees. The Board, by resolution adopted by a majority of the directors in office when the action is taken, may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in the resolution establishing such committee, shall have and may exercise all of the authority of the Board in the management of the business and affairs of the Corporation, except that no such committee shall have the power or authority to (a) authorize distributions, (b) approve or propose to the stockholders actions or proposals required by law to be approved by the stockholders, (c) fill vacancies on the Board or any committee thereof, including any committee authorized by this Section 24, (d) adopt, amend or repeal these Bylaws, (e) approve a plan of merger not requiring stockholder approval, (f) amend the Certificate of Incorporation to the extent permitted by law to be amended by the full Board, (g) authorize or approve reacquisition of shares of the Corporation, except according to a formula or method prescribed by the Board, or (h) authorize or approve the issuance or sale of shares, or any contract for the sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares; except that the Board may authorize a committee or an officer to do so within limits specifically prescribed by the Board. The delegation of authority to any committee shall not operate to relieve the Board or any member of the Board from any responsibility imposed by law. Subject to the foregoing, the Board may provide such powers, limitations and procedures for such committees as the Board deems advisable; except that each committee shall be governed by the procedures set forth in Sections 20 (except as they relate to an annual meeting) through 22 as if the committee were the Board. Each committee shall keep regular minutes of its meetings, which shall be reported to the Board when required and submitted to the Corporation for inclusion in the corporate records.
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Section 25. Organization. At every meeting of the directors, the Chairman of the Board, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 26. Officers Designated, Number, Qualifications and Compensation.
(a) The officers of the Corporation shall consist of a president, treasurer and a secretary, and such other officers, including a chairman of the board, one or more vice presidents, and/or a controller, as may from time to time be appointed by the Board. In addition, the Board or the President may appoint such assistant and other subordinate officers, including assistant vice presidents, assistant secretaries and assistant treasurers, as it or he or she shall deem necessary or appropriate. Any number of offices may be held by the same person. An officer shall be a natural person who is at least 21 years old.
(b) Officers shall receive such compensation for their services as may be authorized or ratified by the Board or by the President, if such authority is delegated to the President by the Board, and no officer shall be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation. Appointment as an officer shall not of itself create a contract or other right to compensation for services performed as such officer.
(c) The Board may require any officer or agent of the Corporation to execute to the Corporation a bond in such sums and with such sureties as shall be satisfactory to the Board, conditioned upon the faithful performance of his or her duties and for the restoration to the Corporation of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.
Section 27. Appointment, Term of Office, and Duties. Except as provided in Section 26 and this Section 27, the officers of the Corporation shall be appointed by the Board annually at the first meeting of the Board held after each annual meeting of the stockholders as provided in Section 20. If the appointment of officers shall not be made as provided herein, such appointment shall be made as soon thereafter as conveniently may be. A vacancy in any office, however occurring, may be filled by the Board or, if such office may be filled by the President as provided in Section 26, by the President, for the unexpired portion of the term. Each officer shall hold office until his or her successor shall have been duly appointed and shall have qualified, or until the expiration of his or her term in office if appointed for a specified period of time, or until his or her earlier death, resignation or removal. In all cases where the duties of any officer are not prescribed by these Bylaws or by the Board, such officer shall follow the orders and instructions of the President, except that in any event each officer shall exercise such powers and perform such duties as may be required by law:
(a) Duties of President. The President shall, subject to the direction and supervision of the Board, (i) be the chief executive officer of the Corporation and have general and active control of its affairs and business and general supervision of its officers, agents and employees; (ii) unless there is a chairman of the Board, preside at all meetings of the stockholders and the Board; (iii) see that all orders and resolutions of the Board are carried into effect; and (iv) perform all other duties incident to the office of president and as from time to time may be assigned to him or her by the Board.
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(b) Duties of Vice Presidents. The vice president, if any (or, if there is more than one, then each vice president), shall assist the President and shall perform such duties as may be assigned to him or her by the President or by the Board. The vice president, if there is one (or, if there is more than one, then the vice president designated by the Board, or, if there be no such designation, then the vice presidents in order of their election), shall, at the request of the President or, in his or her absence or inability or refusal to act, perform the duties of the President and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Assistant vice presidents, if any, shall have such powers and perform such duties as may be assigned to them by the President or by the Board.
(c) Duties of Secretary. The Secretary shall: (i) prepare and maintain the minutes of the proceedings of the stockholders, the Board and any committees of the Board; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (iii) be custodian of the corporate records and of the seal of the Corporation; (iv) keep at the Corporations registered office or principal place of business within or outside Delaware a record containing the names and addresses of all stockholders and the number and class of shares held by each, unless such a record shall be kept at the office of the Corporations transfer agent or registrar; (v) have general charge of the stock books of the Corporation, unless the Corporation has a transfer agent; (vi) authenticate records of the Corporation; and (vii) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him or her by the President or by the Board. Assistant secretaries, if any, shall have the same duties and powers, subject to supervision by the Secretary.
(d) Duties of Treasurer. The Treasurer, if one shall be appointed, shall: (i) be the principal financial officer of the Corporation and have the care and custody of all its funds, securities, evidences of indebtedness and other personal property and deposit the same in accordance with the instructions of the Board; (ii) receive and give receipts and acquittances for moneys paid in on account of the Corporation, and pay out of the funds on hand all bills, payrolls and other just debts of the Corporation of whatever nature upon maturity; (iii) unless there is a controller, be the principal accounting officer of the Corporation and as such prescribe and maintain the methods and systems of accounting to be followed, keep complete books and records of account, prepare and file all local, state and federal tax returns, prescribe and maintain an adequate system of internal audit and prepare and furnish to the President and the Board statements of account showing the financial position of the Corporation and the results of its operations; (iv) upon request of the Board, make such reports to it as may be required at any time; and (v) perform all other duties incident to the office of treasurer and such other duties as from time to time may be assigned to him or her by the Board or the President. Assistant treasurers, if any, shall have the same powers and duties, subject to the supervision by the Treasurer.
Section 28. Authority. The officers of the Corporation shall have the authority and shall exercise the powers and perform their duties specified in Section 27 and as may be additionally specified by the President, the Board or these Bylaws.
Section 29. Resignation. Any officer may resign at any time, subject to any rights or obligations under any existing contracts between the officer and the Corporation, by giving written notice of resignation to the Corporation. A resignation of an officer is effective when the notice is received by the Corporation unless the notice specifies a later effective date. If a resignation is made effective at a later date, the Board may permit the officer to remain in office until the effective date and may fill the pending vacancy before the effective date if the Board provides that the successor does not
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take office until the effective date, or the Board may remove the officer at any time before the effective date and may fill the resulting vacancy. An officers resignation shall take effect at the time specified in such notice and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. An officers resignation does not affect the Corporations contract rights, if any, with the officer.
Section 30. Removal. Any officer may be removed with or without cause at any time by the Board or, in the case of assistant and other subordinate officers, by the Board or the President (whether or not such officer was appointed by the President) whenever in its or his or her judgment, as the case may be, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. The appointment of an officer shall not in itself create contract rights.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
Section 31. Execution of Corporate Instruments. The Board may, in its discretion, determine the method and designate the signatory officer of officers, or other person or persons, to execute on behalf of the Corporation any corporate instrument or document, or to sign on behalf of the Corporation the corporate name without limitation, or to enter into contracts on behalf of the Corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Corporation. Unless limited by the Board in a specific instance, the President or any vice president shall have the power and authority to so bind the Corporation.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation or in special accounts of the Corporation shall be signed by such person or persons as the Board shall authorize to do so.
Unless authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by an contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 32. Voting of Securities by the Corporation. Unless otherwise provided by resolution of the Board, on behalf of the Corporation the President or any vice president shall attend in person or by substitute appointed by him or her, or shall execute written instruments appointing a proxy or proxies to represent the Corporation at, all meetings of the stockholders of any other corporation, association or other entity in which the Corporation holds any stock or other securities, and may execute written waivers of notice with respect to any such meetings. At all such meetings and otherwise, the President or any vice president, in person or by substitute or proxy as aforesaid, may vote the stock or other securities so held by the Corporation and may execute written consents and any other instruments with respect to such stock or securities and may exercise any and all rights and powers incident to the ownership of said stock or securities, subject, however, to the instructions, if any, of the Board.
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ARTICLE VII
STOCK
Section 33. Issuance, Form and Execution of Shares. The issuance or sale by the Corporation of any shares of its authorized capital stock of any class shall be made only upon authorization by the Board, except as otherwise may be provided by law. No shares shall be issued until full consideration has been received therefor. Every issuance of shares shall be recorded on the books maintained for such purpose by or on behalf of the Corporation.
The shares of stock of the Corporation shall be represented by certificates, except that the Board may authorize the issuance of any class or series of stock of the Corporation without certificates as provided by law. If shares are represented by certificates, such certificates shall be signed either manually or in facsimile in the name of the Corporation by one or more officers designated in these Bylaws or by the Board and sealed with the seal of the Corporation or with a facsimile thereof, if any. If the issuing Corporation is authorized to issue different classes of shares or different series within a class, the share certificate shall contain a summary, on the front or the back, of the designations, preferences, limitations and relative rights applicable to each class, the variations in preferences, limitations and rights determined for each series, and the authority of the Board to determine variations for future classes or series. Alternatively, each certificate may state conspicuously on its front or back that the Corporation will furnish to the stockholder this information on request in writing and without charge. If the person who signed, either manually or in facsimile, a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid. Certificates of stock shall be in such form consistent with law as shall be prescribed by the Board.
Section 34. Lost Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock, the Board may direct the issuance of a new certificate in lieu thereof upon such terms and conditions in conformity with law as it may prescribe. The Board may in its discretion require a bond in such form and amount and with such surety as it may determine before issuing a new certificate.
Section 35. Transfer of Shares. Upon presentation and surrender to the Corporation or to the Corporations transfer agent of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, payment of all transfer taxes, if any, and the satisfaction of any other requirements of law, including inquiry into and discharge of any adverse claims of which the Corporation has notice, the Corporation or the transfer agent shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transfer on the books maintained for such purpose by or on behalf of the Corporation. No transfer of shares shall be effective until it has been entered on such books. The Corporation or the Corporations transfer agent may require a signature guaranty or other reasonable evidence that any signature is genuine and effective before making any transfer. Transfers of uncertificated shares shall be made in accordance with applicable provisions of law.
Section 36. Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than 60 days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. A record date
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fixed for the purpose of determining stockholders entitled to notice of a meeting of the stockholders shall be fixed not less than 10 days immediately preceding such meeting (30 days if the authorized stock is to be increased, 20 days if the sale, lease, exchange or other disposition of all or substantially all of the property and assets of the Corporation not in the usual and regular course of business is to be considered). If no record date is so fixed, the date on which notice of the meeting is mailed or the date on which the resolution of the Board declaring the dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of the stockholders has been made as provided in this Section 36, such determination shall apply to any adjournment thereof. Notwithstanding the foregoing provisions of this Section 36, the record date for determining stockholders entitled to take action without a meeting as provided in Section 13 shall be the date specified in such Section.
Section 37. Holders of Record. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as may be required by the laws of Delaware.
Section 38. Shares Held for Account of Another. The Board, in the manner provided by the Act, may adopt a procedure whereby a stockholder of the Corporation may certify in writing to the Corporation that all or a portion of the shares registered in the name of such stockholder are held for the account of a specified person or persons. Upon receipt by the Corporation of a certification complying with such procedure, the persons specified in the certification shall be deemed, for the purpose or purposes set forth therein, to be the holders of record of the number of shares specified in place of the stockholder making the certification.
Section 39. Transfer Agents, Registrars and Paying Agents. The Board may at its discretion appoint one or more transfer agents, registrars or agents for making payment upon any class of stock, bond, debenture or other security of the Corporation. Such agents and registrars may be located either within or outside Delaware. They shall have such rights and duties and shall be entitled to such compensation as may be agreed.
Section 40. Consideration for Shares. Shares shall be issued for such consideration expressed in dollars as shall be fixed from time to time by the Board. Such consideration shall consist of any tangible or intangible property or benefit to the Corporation, including cash, promissory notes, services performed and other securities of the Corporation; however, the promissory note of a subscriber or an affiliate of the subscriber for shares shall not constitute consideration for the shares unless the note is negotiable and is secured by collateral, other than the shares, having a fair market value at least equal to the principal amount of the note. For the purposes of this Section 40, promissory note means a negotiable instrument on which there is an obligation to pay independent of collateral and does not include a nonrecourse note.
ARTICLE VIII
FISCAL YEAR
Section 41. Fiscal Year. The fiscal year of the Corporation shall be as established by the Board.
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ARTICLE IX
INDEMNIFICATION
Section 42. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.
(a) Directors and Officers The Corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the Corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the Corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d) of this Bylaw.
(b) Employees and Other Agents The Corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board shall have the power to delegate the determination of whether indemnification shall be given to any such person as the Board shall determine.
(c) Expenses The Corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, provided, however, that, if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section 42 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to subsection (e) of this Bylaw, no advance shall be made by the Corporation to an officer of the Corporation (except by reason of the fact that such officer is or was a director of the Corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation.
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(d) Enforcement Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the Corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the Corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the Corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the Corporation) for advances, the Corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not believe to be not opposed to the best interests of the Corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the Corporation (including its Board, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the Corporation (including its Board, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
(e) Non Exclusivity of Rights The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL or any other applicable law.
(f) Survival of Rights The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance To the fullest extent permitted by the DGCL, or any other applicable law, the corporation, upon approval by the Board, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.
(h) Amendments Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. If this Section 42 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under applicable law.
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(j) Certain Definitions For the purposes of this Bylaw, the following definitions shall apply:
(1) The term proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a director, executive officer, officer, employee, or agent of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this Bylaw.
ARTICLE X
NOTICES
Section 43. Notices.
(a) Notice to Stockholders. Unless otherwise specified herein, whenever under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the Corporation or its transfer agent.
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(b) Notice to Directors. Unless otherwise specified herein, any notice required to be given to any director may be given by the method stated in subsection (a), or as provided for in Section 20 of these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing . An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or these Bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of articles under any provision of the Act, the articles shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
ARTICLE XI
AMENDMENTS
Section 44. Amendments. The directors may amend or repeal these Bylaws unless the Certificate of Incorporation reserve such power exclusively to the stockholders in whole or in part or the stockholders, in amending or repealing a particular bylaw provision, provide expressly that the directors may not amend or repeal such bylaw. The stockholders may amend or repeal these Bylaws even though these Bylaws may also be amended or repealed by the directors.
* * *
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CERTIFICATE OF SECRETARY
I hereby certify that:
I am the duly elected and acting Secretary of EverQuote, EverQuote, Inc. (f/k/a AdHarmonics, Inc.), a Delaware corporation (the Corporation ); and
Attached hereto is a complete and accurate copy of the Amended and Restated Bylaws of the Corporation as duly adopted by the Board of Directors at Special Meeting on the date hereof and said Amended and Restated Bylaws are presently in effect.
I N W ITNESS W HEREOF , I have hereunto subscribed my name as of the 26th day of June, 2016.
/s/ David Mason |
David Mason, Secretary |
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Exhibit 9.1
VOTING AGREEMENT
T HIS V OTING A GREEMENT (the Agreement ) is made and entered into effective as of the 8th day of February 2018, by and among Link Ventures, LLLP, a Delaware limited liability limited partnership ( Link ), and those certain stockholders, stock option holders and holders of restricted stock units ( RSUs ) of EverQuote, Inc., a Delaware corporation (the Company ) , who become a party hereto from time to time (the Key Holders ) .
W ITNESSETH
W HEREAS , Link and its Affiliates own a majority of the issued and outstanding capital stock and voting power of the Company as of the date hereof; and
W HEREAS , the Key Holders own capital stock or hold stock options or RSUs of the Company; and
W HEREAS , certain of the Key Holders are party to that certain Amended and Restated Voting Agreement, dated June 30, 2016, by and among the Company, certain holders of Preferred Stock of the Company and certain holders of Common Stock of the Company (the Prior Agreement); and
W HEREAS , in consideration for payment by Link to each Key Holder, the parties hereto have agreed to provide for the future voting of their shares of the Companys capital stock as set forth below.
N OW , T HEREFORE , in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. V OTING .
1.1 Key Holders. The Key Holders each agree to hold all shares of voting capital stock, stock options and RSUs of the Company registered in their respective names or beneficially owned by them as of the date each such Key Holder becomes a party hereto or as otherwise provided in Section 1.7 hereof (each an Effective Date ) and any and all other securities of the Company legally or beneficially acquired by each of the Key Holders thereafter (collectively the Key Holder Securities ) subject to, and, except as otherwise provided in Section 1.7 hereof, to vote all voting capital stock included in the Key Holder Securities (collectively the Key Holder Shares ) in accordance with, the provisions of this Agreement.
1.2 Voting. On all matters presented to the Companys stockholders, each Key Holder agrees to vote all Key Holder Shares held by such person (or each holder thereof shall consent pursuant to an action by written consent of the holders of capital stock of the Company) in the manner directed by Link, except as otherwise provided in Section 1.7 hereof.
1.3 No Liability for Election of Recommended Director . None of the parties hereto and no officer, director, stockholder, partner, employee or agent of any party makes any representation or warranty as to the fitness or competence of the nominee of any party hereunder to serve on the Board by virtue of such partys execution of this Agreement or by the act of such party in voting for such nominee pursuant to this Agreement.
1.
1.4 Successors. Each Key Holder covenants and agrees not to transfer any rights, title or interest in or to any of the Key Holder Shares to any Related Party (as defined below) unless and until the Related Party to whom such Key Holder Securities are to be transferred shall have executed a written agreement pursuant to which such person becomes a party to this Agreement and agrees to be bound by all the provisions hereof as if such person were a Key Holder. For the purposes hereof, a Related Party means (a) in the case of a Key Holder that is a natural person, either during his or her lifetime or on death by will or intestacy, his or her spouse, child (natural or adopted), or any other direct lineal descendant of such Key Holder (or his or her spouse) (all of the foregoing collectively referred to as Family Members ), or any custodian or trustee of any trust, partnership or limited liability company for the benefit of, or the ownership interests of which are owned wholly by such Key Holder or any Family Members, and (b) in the case of any other Key Holder, any entity that is under the control of or under common control with such Key Holder.
1.5 Other Rights. Except as provided by this Agreement or the Prior Agreement, each Key Holder shall exercise the full rights of a holder of capital stock, stock options or RSUs of the Company with respect to the Key Holder Securities.
1.6 Irrevocable Proxy. To secure each Key Holders obligations to vote the Key Holder Shares in accordance with this Agreement, except as otherwise provided in Section 1.7 hereof, each Key Holder hereby appoints David Blundin and John Giordano, or either of them from time to time, or their designees, as such Key Holders true and lawful proxy and attorney, with the power to act alone and with full power of substitution, to vote all of such Key Holders Key Holder Shares as set forth in this Agreement and to execute all appropriate instruments consistent with this Agreement on behalf of such Key Holder if, and only if, such Key Holder fails to vote all of such Key Holders Key Holder Shares or execute such other instruments in accordance with the provisions of this Agreement within five (5) days of Links written request for such Key Holders written consent or signature. The proxy and power granted by each Key Holder pursuant to this Section are coupled with an interest and are given to secure the performance of such partys duties under this Agreement. Each such proxy and power will be irrevocable for the term hereof. The proxy and power, so long as any party hereto is an individual, will survive the death, incompetency and disability of such party or any other individual holder of the Key Holder Shares and, so long as any party hereto is an entity, will survive the merger or reorganization of such party or any other entity holding any Key Holder Shares.
1.7 Delayed Effectiveness. No Key Holder who is a party to the Prior Agreement (each a Prior Party) shall be required pursuant to this Agreement to take any action, including without limitation to vote any Key Holder Shares, in a manner inconsistent with the terms and conditions of the Prior Agreement. This Agreement shall not be effective with respect to any Prior Party and shall not constitute a proxy, power of attorney, a voting trust or other agreement prohibited by Section 4.2 of the Prior Agreement with respect to any Prior Party or such Prior Partys Key Holder Securities until such restrictive provisions of Section 4.2 of the Prior Agreement are terminated or waived with respect to such Prior Party or such Prior Partys Key Holder Securities.
2. T ERMINATION .
2.1 This Agreement shall continue in full force and effect from the date hereof until terminated by written consent of Link in its sole discretion.
2.
3. M ISCELLANEOUS .
3.1 Ownership. Each Key Holder represents and warrants to Link that (a) all Key Holder Securities owned by such Key Holder as of such Key Holders respective Effective Date are free and clear of all liens or encumbrances, and such Key Holder has not, prior to or on such Key Holders respective Effective Date, executed or delivered any proxy or entered into any other voting agreement or similar arrangement with respect to such Key Holder Securities other than one which has expired or terminated prior to the date hereof, and (b) such Key Holder has full power and capacity to execute, deliver and perform this Agreement, which has been duly executed and delivered by, and evidences the valid and binding obligation of, such Key Holder enforceable in accordance with its terms.
3.2 Further Action. If and whenever any Key Holder Securities are sold, the Key Holders or the personal representative of the Key Holders shall do all things and execute and deliver all documents and make all transfers, and cause any transferee of the Key Holder Securities to do all things and execute and deliver all documents, as may be necessary to consummate such sale consistent with this Agreement.
3.3 Specific Performance. The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to a party hereto or to their heirs, personal representatives, or assigns by reason of a failure to perform any of the obligations under this Agreement and agree that the terms of this Agreement shall be specifically enforceable. If any party hereto or his heirs, personal representatives, or assigns institutes any action or proceeding to specifically enforce the provisions hereof, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that such party or such personal representative has an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists.
3.4 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and shall be binding upon the parties hereto in the United States and worldwide. Each of the parties hereto irrevocably consents to the exclusive jurisdiction and venue of any federal or state court within Suffolk County, Commonwealth of Massachusetts in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, agrees that process may be served upon it in any manner authorized by the laws of the Commonwealth of Massachusetts for such persons and waives and covenants not to assert or plead any objection that they might otherwise have to jurisdiction, venue and such process. Each party agrees not to commence any legal proceedings based upon or arising out of this Agreement or the matters contemplated herein except in such courts.
3.5 Amendment or Waiver. This Agreement may be amended or modified (or provisions of this Agreement waived) only upon the written consent of all of the parties hereto. Any amendment or waiver so effected shall be binding upon each of the parties hereto and any assignee of any such party. Notwithstanding the foregoing, this Agreement may be amended to add additional holders of capital stock of the Company as Key Holders hereunder by an instrument in writing signed by Link and each such holder.
3.6 Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
3.
3.7 Successors and Assigns. The provisions hereof shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, assigns, heirs, executors and administrators and other legal representatives.
3.8 Additional Shares. In the event that subsequent to the date of this Agreement any shares or other securities are issued on, or in exchange for, any of the Key Holder Securities by reason of any stock dividend, stock split, combination of shares, reclassification or the like, such shares or securities shall be deemed to be Key Holder Securities for purposes of this Agreement.
3.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together shall constitute one instrument.
3.10 Waiver. No waivers of any breach of this Agreement extended by any party hereto to any other party shall be construed as a waiver of any rights or remedies of any other party hereto or with respect to any subsequent breach.
3.11 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any partys part of any breach, default or noncompliance under this Agreement or any waiver on such partys part of any provisions or conditions of the Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement by law, or otherwise afforded to any party, shall be cumulative and not alternative.
3.12 Costs and Attorneys Fees. In the event that any action, suit or other proceeding is instituted based upon or arising out of this Agreement or the matters contemplated herein, the prevailing party shall recover all of such partys costs (including, but not limited to expert witness costs) and reasonable attorneys fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom.
3.13 Notices. All notices required in connection with this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written notification of receipt. All communications shall be sent to the address appearing on the books of the Company or at such other address or electronic mail address as such party may designate by 10 days advance written notice to the other parties hereto.
3.14 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein. Each party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement.
[Remainder of Page Intentionally Left Blank)
4.
I N W ITNESS W HEREOF , the parties hereto have executed this V OTING A GREEMENT as of the date first above written.
L INK V ENTURES , LLLP | ||||||||
BY: | L INK M ANAGEMENT , LLC | |||||||
By: |
/s/ David Blundin |
|||||||
David Blundin, its Manager |
KEY HOLDERS:
/s/ John Giordano |
Name: John Giordano |
Date: 2/8/18 |
/s/ John L. Shields |
Name: John L Shields |
Date: 2/8/18 |
/s/ Jayme Mendal |
Name: Jayme Mendal |
Date: 2/20/18 |
/s/ Darryl Auguste |
Name: Darryl Auguste |
Date: 2/20/18 |
/s/ Edward F. Walker |
Name: Edward F. Walker |
Date: 2/8/2018 |
/s/ John Felton |
Name: John Felton |
Date: 2/17/18 |
/s/ Seth Birnbaum |
Name: Seth Birnbaum |
Date: 2/9/18 |
/s/ Tomas Revesz |
Name: Tomas Revesz |
Date: 2/9/18 |
/s/ Thomas Ellis |
Name: Thomas Ellis |
Date: 2/16/18 |
S IGNATURE P AGE TO
V OTING A GREEMENT
/s/ Reilly Bayer |
Name: Reilly Bayer |
Date: 2/15/18 |
/s/ John Tawadros |
Name: John Tawadros |
Date: 2/14/18 |
/s/ Jonathan Shapiro |
Name: Jonathan Shapiro |
Date: 2/14/18 |
/s/ Ed Hammond |
Name: Ed Hammond |
Date: 2/14/18 |
/s/ David Mason |
Name: David Mason |
Date: 2/12/2018 |
/s/ Jeffrey Considine |
Name: Jeffrey Considine |
Date: 2/12/2018 |
/s/ John B. Wagner |
Name: John B Wagner |
Date: 2/12/18 |
/s/ John W. Byers |
Name: John W. Byers |
Date: 2/12/18 |
S IGNATURE P AGE TO
V OTING A GREEMENT
Exhibit 10.1
EXECUTION COPY
AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (this Agreement ), is made as of the 30 th day of June, 2016, by and among E VER Q UOTE , I NC . , a Delaware corporation (the Company ), and each of the investors listed on S CHEDULE A hereto, each of which is referred to in this Agreement as an Investor and any Additional Purchaser (as defined in the Purchase Agreement) that becomes a party to this Agreement in accordance with Section 6.9 hereof.
RECITALS
WHEREAS , certain of the Investors (the Existing Investors ) hold shares of the Companys Series A Preferred Stock and/or shares of Common Stock issued upon conversion thereof and possess registration rights, information rights, rights of first offer, and other rights pursuant to an Investors Rights Agreement dated as of August 8, 2008 between the Company and such Investors (the Prior Agreement ); and
WHEREAS , the Existing Investors are holders of at least sixty percent (60%) of the Registrable Securities of the Company (as defined in the Prior Agreement), and desire to amend and restate the Prior Agreement in its entirety and to accept the rights created pursuant to this Agreement in lieu of the rights granted to them under the Prior Agreement; and
WHEREAS , certain of the Investors are parties to that certain Series B Preferred Stock Purchase Agreement of even date herewith between the Company and certain of the Investors (the Purchase Agreement ), under which certain of the Companys and such Investors obligations are conditioned upon the execution and delivery of this Agreement by such Investors, Existing Investors holding at least sixty percent (60%) of the Registrable Securities, and the Company;
NOW, THEREFORE , the Existing Investors hereby agree that the Prior Agreement shall be amended and restated and the parties to this Agreement further agree as follows:
1. Definitions . For purposes of this Agreement:
1.1 Affiliate means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
1.2 Common Stock means shares of the Companys common stock, par value $0.001 per share.
1.3 Damages means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
1.4 Derivative Securities means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.
1.5 Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
1.6 Excluded Registration means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
1.7 FOIA Party means a Person that, in the reasonable determination of the Board of Directors, may be subject to, and thereby required to disclose non-public information furnished by or relating to the Company under, the Freedom of Information Act, 5 U.S.C. 552 ( FOIA ), any state public records access law, any state or other jurisdictions laws similar in intent or effect to FOIA, or any other similar statutory or regulatory requirement.
1.8 Form S-1 means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
1.9 Form S-3 means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.
1.10 GAAP means generally accepted accounting principles in the United States.
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1.11 Holder means any holder of Registrable Securities who is a party to this Agreement.
1.12 Immediate Family Member means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including, adoptive relationships, of a natural person referred to herein.
1.13 Initiating Holders means, collectively, Holders who properly initiate a registration request under this Agreement.
1.14 IPO means the Companys first underwritten public offering of its Common Stock under the Securities Act.
1.15 Key Employee means any executive-level employee (including, division director and vice president-level positions) as well as any employee who, either alone or in concert with others, develops, invents, programs, or designs any Company Intellectual Property (as defined in the Purchase Agreement).
1.16 New Securities means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.
1.17 Person means any individual, corporation, partnership, trust, limited liability company, association or other entity.
1.18 Preferred Stock means, collectively, shares of the Companys Series A Preferred Stock and Series B Preferred Stock.
1.19 Registrable Securities means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors after the date hereof; and (iii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Subsection 6.1 . and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Subsection 2.13 of this Agreement.
1.20 Registrable Securities then outstanding means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
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1.21 Restated Certificate means the Companys Amended and Restated Certificate of Incorporation, as amended from time-to-time.
1.22 Restricted Securities means the securities of the Company required to be notated with the legend set forth in Subsection 2.12(b) hereof.
1.23 SEC means the Securities and Exchange Commission.
1.24 SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act.
1.25 SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act.
1.26 Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
1.27 Selling Expenses means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.6 .
1.28 Series A Preferred Stock means shares of the Companys Series A Preferred Stock, par value $0.001 per share.
1.29 Series A Registrable Securities means the Common Stock issuable or issued upon conversion of the Series A Preferred Stock.
1.30 Series B Preferred Stock means shares of the Companys Series B Preferred Stock, par value $0.001 per share.
1.31 Series B Registrable Securities means the Common Stock issuable or issued upon conversion of the Series B Preferred Stock.
1.32 Series Preferred Director means any director of the Company that the holders of record of the Preferred Stock are entitled to elect as a separate class pursuant to the Restated Certificate.
2. Registration Rights . The Company covenants and agrees as follows:
2.1 Demand Registration .
(a) Form S-1 Demand . If at any time after the earlier of (i) three (3) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of fifty percent (50%) of the Registrable Securities then outstanding that the Company file a Form
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S-1 registration statement with respect to at least forty percent (40%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of Selling Expenses, would exceed $15 million), then the Company shall (x) within ten (10) days after the date such request is given, give notice thereof (the Demand Notice ) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3 .
(b) Form S-3 Demand . If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least twenty percent (20%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $5 million, then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3 .
(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection 2.1 a certificate signed by the Companys chief executive officer stating that in the good faith judgment of the Companys Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than thirty (30) days after the request of the Initiating Holders is given; provided , however, that the Company may not invoke this right more than once in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such thirty (30) day period other than an Excluded Registration.
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(d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(a)(i) during the period that is sixty (60) days before the Companys good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected two registrations pursuant to Subsection 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Subsection 2.1(b) . The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(b) (i) during the period that is thirty (30) days before the Companys good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Subsection 2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as effected for purposes of this Subsection 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Subsection 2.6 , in which case such withdrawn registration statement shall be counted as effected for purposes of this Subsection 2.1(d) .
2.2 Company Registration . If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Subsection 2.3 , cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Subsection 2.6 .
2.3 Underwriting Requirements .
(a) If, pursuant to Subsection 2.1 , the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Subsection 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holders Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Subsection 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such
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underwriting. Notwithstanding any other provision of this Subsection 2.3 , if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided , however , that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.
(b) In connection with any offering involving an underwriting of shares of the Companys capital stock pursuant to Subsection 2.2 , the Company shall not be required to include any of the Holders Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Registrable Securities included in the offering be reduced below twenty-five percent (25%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholders securities are included in such offering. For purposes of the provision in this Subsection 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single selling Holder, and any pro rata reduction with respect to such selling Holder shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such selling Holder, as defined in this sentence.
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(c) For purposes of Subsection 2.1 , a registration shall not be counted as effected if, as a result of an exercise of the underwriters cutback provisions in Subsection 2.3(a) , fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.
2.4
Obligations of the Company
. Whenever required under this
Section
2
to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to sixty (60) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;
(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
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(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h) promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Companys officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and
(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.
In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Companys directors may implement a trading program under Rule 10b5-1 of the Exchange Act.
2.5 Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holders Registrable Securities.
2.6 Expenses of Registration . All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $50,000, of one counsel for the selling Holders ( Selling Holder Counsel ), shall be borne and paid by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the
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Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b) , as the case may be; provided further that if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b) . All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
2.7 Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2 .
2.8 Indemnification . If any Registrable Securities are included in a registration statement under this Section 2 :
(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Subsection 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.
(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written
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information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Subsection 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Subsections 2.8(b) and 2.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
(c) Promptly after receipt by an indemnified party under this Subsection 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Subsection 2.8 , give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Subsection 2.8 , to the extent that such failure materially prejudices the indemnifying partys ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Subsection 2.8 .
(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Subsection 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Subsection 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Subsection 2.8 , then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect
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any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided , however , that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holders liability pursuant to this Subsection 2.8(d) , when combined with the amounts paid or payable by such Holder pursuant to Subsection 2.8(b) , exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.
(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Subsection 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2 , and otherwise shall survive the termination of this Agreement.
2.9 Reports Under Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:
(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;
(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and
(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to
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such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).
2.10 Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that (i) would provide to such holder the right to include securities in any registration on other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include; or (ii) allow such holder or prospective holder to initiate a demand for registration of any securities held by such holder or prospective holder; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Subsection 6.9 .
2.11 Market Stand-off Agreement . Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company for its own behalf of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-1 or Form S-3, and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days in the case of the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock (whether such shares or any such securities are then owned by the Holder or are thereafter acquired) or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Subsection 2.11 shall apply only to the IPO, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall be applicable to the Holders only if all officers, directors, and stockholders individually owning more than one percent (1%) of the Companys outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock) are subject to the same restrictions. The underwriters in connection with such registration are intended third-party beneficiaries of this Subsection 2.11 and shall have the right,
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power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Subsection 2.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.
2.12 Restrictions on Transfer .
(a) The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.
(b) Each certificate, instrument, or book entry representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Subsection 2.12(c) ) be notated with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Subsection 2.12 .
(c) The holder of such Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2 . Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holders intention to effect such sale,
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pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holders expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a no action letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or no action letter (x) in any transaction in compliance with SEC Rule 144; or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Subsection 2.12 . Each certificate, instrument, or book entry representing the Restricted Securities transferred as above provided shall be notated with, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Subsection 2.12(b) , except that such certificate instrument, or book entry shall not be notated with such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.
2.13 Termination of Registration Rights . The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Subsections 2.1 or 2.2 shall terminate upon the earliest to occur of:
(a) the closing of a Deemed Liquidation Event, as such term is defined in the Restated Certificate;
(b) such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holders shares without limitation during a three-month period without registration; and
(c) the five (5) year anniversary of the IPO.
3. Information and Observer Rights .
3.1 Delivery of Financial Statements . The Company shall deliver to each Investor:
(a) as soon as practicable, but in any event within one hundred fifty (150) days after the end of each fiscal year of the Company (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined in Subsection 3.1(e) ) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such year, and (iii) a statement of stockholders equity as of the end of such year, all such financial statements audited and certified by independent public accountants of nationally recognized standing selected by the Company;
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(b) as soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(c) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Investors to calculate their respective percentage equity ownership in the Company, and certified by the chief financial officer or chief executive officer of the Company as being true, complete, and correct;
(d) as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet and statement of stockholders equity as of the end of such month, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(e) as soon as practicable, but in any event thirty (30) days before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the Budget), approved by the Board of Directors and prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company;
(f) with respect to the financial statements called for in Subsection 3.1(a) , Subsection 3.1(b) and Subsection 3.1(d) , an instrument executed by the chief financial officer and chief executive officer of the Company certifying that such financial statements were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (except as otherwise set forth in Subsection 3.1(b) and Subsection 3.1(d) ) and fairly present the financial condition of the Company and its results of operation for the periods specified therein;
(g) such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Investor may from time to time reasonably request; provided , however , that the Company shall not be obligated under this Subsection 3.1 to provide information that the Company reasonably determines in good faith to be a trade secret or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel; and
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(h) notice of any: (i) claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to the Companys knowledge, currently threatened against the Company or any officer, director or employee of the Company, (ii) violation or default of any provisions of its Restated Certificate or bylaws, (iii) violation or default under any material instrument, judgment, order, writ or decree, note, indenture or mortgage, lease, contract or purchase order to which it is a party or by which it is bound, and (iv) violation of any provision of federal or state statute, rule or regulation applicable to the Company.
If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Notwithstanding anything else in this Subsection 3.1 to the contrary, the Company may cease providing the information set forth in this Subsection 3.1 during the period starting with the date thirty (30) days before the Companys good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Companys covenants under this Subsection 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.
3.2 Inspection . The Company shall permit each Investor at such Investors expense, to visit and inspect the Companys properties; examine its books of account and records; and discuss the Companys affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Investor; provided , however , that the Company shall not be obligated pursuant to this Subsection 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
3.3 Observer Rights . As long as Savano Capital Partners II, LP and its Affiliates ( SCP ) own an aggregate of not less than 10,000 shares of the Series B Preferred Stock it is purchasing under the Purchase Agreement (or an equivalent amount of Common Stock or Series B-1 Preferred Stock issued upon conversion thereof) (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations affecting such shares), the Company shall invite a representative of SCP to attend all meetings of its Board of Directors and its committees in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors (including without limitation, presentations, schedules and analysis) at the same time and in the same manner as provided to such directors; provided , however , that such representative shall agree to hold in confidence with respect to all information so provided; and
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provided further , that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting would adversely affect the attorney-client privilege between the Company and its counsel.
3.4 Termination of Information and Observer Rights . The covenants set forth in Subsection 3.1 , Subsection 3.2 , and Subsection 3.3 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.
3.5 Confidentiality . Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Companys intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Subsection 3.5 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Companys confidential information, or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided , however , that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Subsection 3.5 ; (iii) to any existing or prospective Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
4. Rights to Future Stock Issuances .
4.1 Right of First Offer . Subject to the terms and conditions of this Subsection 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Investor. An Investor shall be entitled to apportion the right of first offer hereby granted to it. in such proportions as it deems appropriate, among (i) itself, (ii) its Affiliates and (iii) its beneficial interest holders, such as limited partners, members or any other Person having beneficial ownership, as such term is defined in Rule 13d-3 promulgated under the Exchange Act, of such Investor ( Investor Beneficial Owners ); provided that each such Affiliate or Investor Beneficial Owner (x) is not a FOIA Party, unless such partys purchase of New Securities is otherwise consented to by the Board of Directors, (y) agrees to enter into this Agreement and each of the Voting Agreement and Right of First Refusal and Co-Sale Agreement of even date herewith among the Company,
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the Investors and the other parties named therein, as an Investor under each such agreement ( provided that any FOIA Party shall not be entitled to any rights as an Investor under Subsections 3.1 , 3.2 and 4.1 hereof), and (z) agrees to purchase at least such number of New Securities as are allocable hereunder to the Investor holding the fewest number of Preferred Stock and any other Derivative Securities.
(a) The Company shall give notice (the Offer Notice ) to each Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.
(b) By notification to the Company within twenty (20) days after the Offer Notice is given, each Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Investor (including all shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Investor) bears to the total Common Stock of the Company then outstanding (including all shares of Common Stock issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by the Investors). At the expiration of such twenty (20) day period, the Company shall promptly notify each Investor that elects to purchase or acquire all the shares available to it (each, a Fully Exercising Investor ) of any other Investors failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Investors were entitled to subscribe but that were not subscribed for by the Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Subsection 4.1(b) shall occur within the later of ninety (90) days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Subsection 4.1(c) .
(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Subsection 4.1(b) , the Company may, during the ninety (90) day period following the expiration of the periods provided in Subsection 4.1(b) , offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Investors in accordance with this Subsection 4.1 .
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(d) The right of first offer in this Subsection 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Restated Certificate); (ii) shares of Common Stock issued in the IPO; and (iii) the issuance of shares of Preferred Stock to Additional Purchasers pursuant to Subsection 1.3 of the Purchase Agreement.
(e) Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of this Subsection 4.1, the Company may elect to give notice to the Investors within thirty (30) days after the issuance of New Securities. Such notice shall describe the type, price, and terms of the New Securities. Each Investor shall have twenty (20) days from the date notice is given to elect to purchase up to the number of New Securities that would, if purchased by such Investor, maintain such Investors percentage-ownership position, calculated as set forth in Subsection 4.1(b) before giving effect to the issuance of such New Securities. If this provision is included in the Agreement, careful attention should be paid to the denominator used in the calculation of the pro rata participation right. Note that this language will not work if Section 4.1 has been set up to give the investors a preemptive right. The closing of such sale shall occur within sixty (60) days of the date notice is given to the Investors.
4.2 Termination . The covenants set forth in Subsection 4.1 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.
5. Additional Covenants .
5.1 Insurance . The Company shall use its commercially reasonable efforts to obtain, within ninety (90) days of the date hereof, from financially sound and reputable insurers Directors and Officers liability insurance, in an amount and on terms and conditions satisfactory to the Board of Directors, and will use commercially reasonable efforts to cause such insurance policies to be maintained until such time as the Board of Directors determines that such insurance should be discontinued. The policy shall not be cancelable by the Company without prior approval by the Board of Directors and holders of a majority of the Preferred Stock.
5.2 Employee Agreements . The Company will cause (i) each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement; and (ii) each Key Employee to enter into a one (1) year noncompetition and nonsolicitation agreement, substantially in the form approved by the Board of Directors. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any of the above- referenced agreements or any restricted stock agreement between the Company and any employee, without the consent of the Board of Directors.
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5.3 Employee Stock . Unless otherwise approved by the Board of Directors, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Companys capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, and (ii) a market stand-off provision substantially similar to that in Subsection 2.11 . In addition, unless otherwise approved by the Board of Directors, the Company shall retain a right of first refusal on employee transfers until the Companys IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock.
5.4 Investor Director Approval . So long as the holders of Preferred Stock are entitled to elect a Series Preferred Director, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board of Directors, which approval must include the affirmative vote of at least one of the Series Preferred Directors, authorize or enter into any transactions with any director or management employee, or such directors or employees immediate family.
5.5 Board Matters . The Company shall reimburse the nonemployee directors and the SCP observer for all reasonable out-of-pocket travel expenses incurred (consistent with the Companys travel policy) in connection with attending meetings of the Board of Directors and its committees.
5.6 Successor Indemnification . If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Companys Bylaws, its Restated Certificate, or elsewhere, as the case may be.
5.7 Right to Conduct Activities . The Company hereby agrees and acknowledges that SCP is a professional investment fund, and as such invests in numerous portfolio companies, some of which may be deemed competitive with the Companys business (as currently conducted or as currently propose to be conducted). The Company hereby agrees that, to the extent permitted under applicable law, SCP shall not be liable to the Company for any claim arising out of, or based upon, (i) the investment by SCP in any entity competitive with the Company, or (ii) actions taken by any partner, officer or other representative of SCP to assist any such competitive company, whether or not such action was taken as a member of the board of directors of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided, however, that the foregoing shall not relieve (x) any of the Investors from liability associated with the unauthorized disclosure of the Companys confidential information obtained pursuant to this Agreement, or (y) any director or officer of the Company from any liability associated with his or her fiduciary duties to the Company.
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5.8 Assignment of Right of First Refusal . In the event the Company elects not to exercise any right of first refusal or right of first offer the Company may have on a proposed transfer of any of the Companys outstanding capital stock pursuant to the Restated Certificate, by contract or otherwise (other than the Amended and Restated Right of First Refusal and Co-Sale Agreement, dated on or about the date of this Agreement), the Company shall, to the extent it may do so, assign such right of first refusal or right of first offer to SCP and, at SCPs election, to one or more Affiliates of SCP.
5.9 Termination of Covenants . The covenants set forth in this Section 5, except for Subsection 5.6 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.
6. Miscellaneous .
6.1 Successors and Assigns . The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; (ii) is a Holders Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holders Immediate Family Members; or (iii) after such transfer, holds at least 10,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations); provided , however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Subsection 2.11 . For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holders Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holders Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
6.2 Governing Law . This Agreement shall be governed by the internal law of the State of Delaware.
6.3 Counterparts . This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
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6.4 Titles and Subtitles . The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
6.5 Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipients normal business hours, and if not sent during normal business hours, then on the recipients next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A (as applicable) hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Subsection 6.5 . If notice is given to the Company, a copy shall also be sent to Morgan, Lewis & Bockius LLP, One Federal Street, Boston, MA 02110, Attention: John J. Concannon III and William S. Perkins and if notice is given to SCP, a copy shall also be given to DLA Piper LLP (US), 11911 Freedom Drive, Suite 300, Reston, VA 20190, Attention: Jeffrey K. Lehrer.
6.6 Amendments and Waivers. This Agreement may be amended, modified or terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) the Company, (ii) the holders of a majority of the Common Stock issued or issuable upon the conversion of the Series A Preferred Stock and the holders of a majority of the Common Stock issued or issuable upon the conversion of the Series B Preferred Stock, which majority must include SCP for so long as they hold not less than 84,019 shares of Series B Preferred Stock (or Series B-1 Preferred Stock) (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations affecting such shares), each voting as separate classes (collectively, the Majority Investors ); provided that the Company may in its sole discretion waive compliance with Subsection 2.12(c) (and the Companys failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Subsection 2.12(c) shall be deemed to be a waiver); provided further that any provision hereof may be waived by any waiving party on such partys own behalf; and provided further that this Agreement may be amended in connection with an equity financing of the Company without the consent of the Majority Investors if (a) such amendment is approved by the holders of a majority of the Registrable Securities, and (b) such amendment does not adversely affect the rights or obligations of SCP or the holders of the Common Stock issued or issuable upon conversion of the Series B Preferred Stock. For the sake of clarity, merely adding additional holders of the Companys capital stock as Investors under this Agreement and including additional shares of the Companys capital slock in the definition of Registrable Securities or Preferred Stock shall not be deemed to be adverse to the rights or obligations of SCP or the holders of the
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Common Stock issued or issuable upon conversion of the Series B Preferred Stock. Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction). The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Subsection 6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
6.7 Severability . In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
6.8 Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons or entities may apportion such rights as among themselves in any manner they deem appropriate.
6.9 Additional Investors . Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Companys Preferred Stock after the date hereof, whether pursuant to the Purchase Agreement or otherwise, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an Investor for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an Investor hereunder.
6.10 Entire Agreement . This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated in its entirety by this Agreement, and shall be of no further force or effect.
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6.11 Dispute Resolution . The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Delaware and to the jurisdiction of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of Delaware or the United States District Court for the District of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
The prevailing party shall be entitled to reasonable attorneys fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled in the U.S.
6.12 Delays or Omissions . No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
6.13 Acknowledgment . The Company acknowledges that the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict the Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.
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6.14 Specific Performance . In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Investor shall be entitled to specific performance of the agreements and obligations of the Company hereunder and to such other injunction or other equitable relief as may be granted by a court of competent jurisdiction.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
E VER Q UOTE , I NC . | ||
By: |
/s/ Seth N. Birnbaum |
|
Name: | Seth Birnbaum | |
Title: | President |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS: | ||
S AVANO -E VER Q UOTE LLC | ||
By: | Savano-SPV Manager LLC, its Manager | |
By: |
/s/ Thomas Smith |
|
Name: | Thomas Smith | |
Title: | Managing Member |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS: | ||
T CAPITAL PARTNERS HW I, L.P. | ||
By: | T CAPITAL PARTNERS, LLC | |
Its General Partner | ||
By: |
/s/ Thayer F. Swartwood |
|
Name: | Thayer F. Swartwood | |
Title: | Managing Member |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS: | ||
STRATIM CAPITAL GROWTH FUND II, LLC | ||
By: SCGF, LLC | ||
Its Manager | ||
By: |
/s/ Zachary Abrams |
|
Name: | Zachary Abrams | |
Title: | Managing Member |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
INVESTORS: | ||
SECOND ALPHA PARTNERS IV GP, L.P. | ||
By: Second Alpha Partners IV GP, LLC, Its General Partner |
||
By: |
/s/ James Sanger |
|
Name: | James Sanger | |
Title: | Authorized Person | |
STRATIM NEWBURY FUND, LLC | ||
By: SCGF, LLC | ||
Its Manager | ||
By: |
/s/ Zachary Abrams |
|
Name: | Zachary Abrams | |
Title: | Managing Member |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
INVESTORS: | ||||||||
LV2 LP EQ Series B SPV, LLC | ||||||||
By: LV2 EQ SPV Manager, LLC, its Managing Member |
||||||||
By: Link Equity Partners, LLC, its Managing Member |
||||||||
By: |
/s/ David Blundin |
|||||||
David Blundin, Manager |
||||||||
BEECH INVESTMENT COUNSEL, INC. | ||||||||
By: |
/s/ William Blundin |
|||||||
Name: |
William Blundin |
|||||||
Title: |
||||||||
WILLIAM BLUNDIN | ||||||||
/s/ William Blundin |
||||||||
KYLE KAHRIMAN | ||||||||
/s/ Kyle Kahriman |
||||||||
SANJU BANSAL | ||||||||
/s/ Sanju Bansal |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
INVESTORS: |
Z ACHARY A BRAMS |
/s/ Zachary Abrams |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
INVESTORS: |
JOHN GIORDANO |
/s/ John Giordano |
SCHEDULE A
INVESTORS
SAVANO CAPITAL PARTNERS II, LP
Attention: Thomas Smith
Managing Director
901 S. Bond Street, Suite 400
Baltimore, MD 21321
Phone - (410) 537-5517
tom@brownsavano.com
SAVANO - EVERQUOTE LLC
Attention: Thomas Smith
Managing Director
901 S. Bond Street, Suite 400
Baltimore, MD 21321
Phone - (410) 537-5517
tom@brownsavano.com
LINK VENTURES INVESTMENT VEHICLE II, LLC
John Giordano
1 Kendall Square
Building 200 - Suite B2106
Cambridge, MA 02139
Phone - (339) 293 4283
LINK VENTURES, LLLP
Attention: David Blundin
1 Kendall Square
Building 200 - Suite B2106
Cambridge, MA 02139
Phone - (339) 293 4283
COGO LABS, INC.
Attention: David Blundin
1 Kendall Square
Suite B2102
Cambridge, MA 02139
Phone - (781) 228 5678
T CAPITAL PARTNERS HW I, L.P.
Thayer F. Swartwood
Managing Member
T Capital Partners, LLC
60 Thoreau Street #235
Concord, MA 01742
thayer@tcapitalpartners.com
857-209-8516
STRATIM CAPITAL GROWTH FUND II, LLC
333 Bush Street, Suite 2250
San Francisco, CA 94104
zabrams@stratimcapital.com
STRATIM NEWBURY FUND, LLC
333 Bush Street, Suite 2250
San Francisco, CA 94104
zabrams@stratimcapital.com
SECOND ALPHA PARTNERS IV GP, L.P.
276 Fifth Ave, Suite 901
New York, NY 10001
Attn: CFO
Exhibit 10.2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the Agreement ) is made and entered into as of between EVERQUOTE, INC. , a Delaware corporation (the Company ), and ( Indemnitee ).
WITNESSETH THAT:
WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the Board ) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The Certificate of Incorporation and the By-laws of the Company require, indemnification of directors and officers of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware ( DGCL ). The Certificate of Incorporation, By-laws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors and officers with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Companys stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;
WHEREAS, Indemnitee does not regard the protection available under the Companys Certificate of Incorporation and By-laws and insurance as adequate in the present circumstances, and may not be willing to serve as a director or officer without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and
NOW, THEREFORE, in consideration of Indemnitees agreement to serve as a director or officer after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(a) if, by reason of his Corporate Status (as hereinafter defined), the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a) , Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b) , Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitees behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
2. Additional Indemnity . In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts
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paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Companys obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.
3. Contribution .
(a) To the fullest extent permissible under applicable law, whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the Law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for
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Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such
Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or
transaction(s).
4. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked to) respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitees Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.
6. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the Delaware General Corporation Law and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination, if required by applicable law, with respect to Indemnitees entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the board: (1) by a majority vote of the disinterested directors, even though less than a quorum, (2) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum, (3) if there are no disinterested directors or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, or (4) if so directed by the Board of Directors, by the stockholders of the Company. For purposes hereof, disinterested directors are those members of the board of directors of the Company who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.
(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to
Section
6(b)
hereof, the Independent Counsel shall be selected as
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provided in this Section 6(c) . The determination of whether Independent Counsel shall be engaged and the selection of such Independent Counsel shall be made by the Board of Directors. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Companys selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c) , regardless of the manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e) Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(f) If the person, persons or entity empowered or selected under Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled
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to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board of Directors or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board of Directors or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitees entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
7. Remedies of Indemnitee .
(a) In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the
6
Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitees entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a) . The Company shall not oppose Indemnitees right to seek any such adjudication.
(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b) .
(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7 , seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors and officers liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation .
(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any
7
action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Delaware General Corporation Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(e) The Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
9. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or
(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or
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(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
10. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
11. Security . To the extent requested by Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to Indemnitee for the Companys obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
12. Enforcement .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
13. Definitions . For purposes of this Agreement:
(a) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.
(b) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(c) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.
(d) Expenses shall include all reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and
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binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(e) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(f) Proceeding includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.
14. Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.
15. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
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16. Notice By Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
17. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a) To Indemnitee at the address set forth below Indemnitees signature hereto.
(b) To the Company at:
EverQuote, Inc.
210 Broadway
Cambridge, MA 02139
Attn: General Counsel
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
18. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
19. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
20. Governing Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court ), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
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[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
EVERQUOTE, INC. |
By: |
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Name: | ||
Title: |
INDEMNITEE | ||
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Name: | ||
Address: | ||
SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT
Exhibit 10.3
EVERQUOTE, INC.
AMENDED AND RESTATED 2008 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the EverQuote, Inc. Amended and Restated 2008 Stock Incentive Plan (the Plan). The purpose of the Plan is to encourage and enable the officers, employees, directors and other key persons (including consultants) (collectively, Participants) of EverQuote, Inc. (formerly AdHarmonics, Inc.) (the Company) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Companys welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Companys behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
Act means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
Administrator is defined in Section 2(a).
Award or Awards, except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards, Unrestricted Stock Awards, and Performance Share Awards.
Board means the Board of Directors of the Company.
Cause means a vote of the Board resolving that the grantee should be dismissed as a result of (i) the commission of any act by a grantee constituting financial dishonesty against the Company (which act would be chargeable as a crime under applicable law); (ii) a grantees engaging in any other act of dishonesty, fraud, intentional misrepresentations, moral turpitude, illegality or harassment, which as determined in good faith by the Board, would: (A) materially adversely affect the business or the reputation of the Company with its current or prospective customers, suppliers, lenders and/or other third parties with whom it does or might do business; or (B) expose the Company to a risk of civil or criminal legal damages, liabilities or penalties; (iii) the repeated failure by a grantee to follow the directives of the Companys chief executive officer or the Board; (iv) any material breach by the grantee of any agreement between the grantee and the Company; or (v) any material misconduct, violation of the Companys policies, or willful and deliberate non-performance of duty (other than by reason of disability) by the grantee in connection with the business affairs of the Company.
Code means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
Committee means the Committee of the Board referred to in Section 2.
Covered Employee means an employee who is a Covered Employee within the meaning of Section 162(m) of the Code.
Effective Date means the date on which the Plan is approved by stockholders as set forth in Section 16.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
Fair Market Value means the fair market value of the Stock determined reasonably and in good faith by the Administrator consistent with the requirements for valuation under Section 409A of the Code, which shall be determined by the Administrator immediately prior to the grant, exercise, or satisfaction (as applicable) of an Award under the Plan. In making a reasonable good faith determination of the Stocks fair market value, the Administrator may use any one, or none, of the following three safe harbor valuation methodologies provided for under Section 409A of the Code: (i) an independent appraisal that meets the requirements of Section 401(a)(28)(C) of the Code and which is conducted no more than twelve (12) months before the relevant transaction for which the fair market value is required (such as the date of grant of the Award); (ii) a generally applicable repurchase formula that would be treated as fair market value for purposes of Section 83 of the Code and which would apply for both compensatory and noncompensatory purposes; or (iii) in the event the Stock is deemed to be illiquid stock of a start-up corporation pursuant to the regulations promulgated under Section 409A of the Code, a valuation by a qualified individual(s) if at the time of the valuation, the Company did not reasonably anticipate a change in control event in the next ninety (90) days or an initial public offering of the Stock in the next one hundred-eighty (180) days. Notwithstanding the foregoing to the contrary, if the Stock is admitted to quotation on the NASDAQ Stock Market or a national securities exchange, the determination of the Stocks fair market value shall be made by reference to market quotations. If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there was a market quotation. The fair market value of Stock at the time of the grant of an Award shall be specified on the instrument granting such Award.
Incentive Stock Option means any Stock Option designated and qualified as an incentive stock option as defined in Section 422 of the Code.
Non-Qualified Stock Option means any Stock Option that is not an Incentive Stock Option.
Option or Stock Option means any option to purchase shares of Stock granted pursuant to Section 5.
Participant means any officer, employee, director, consultant or other key person who provides services to the Company or any Subsidiary of the Company.
Performance-based Award means Awards granted pursuant to Section 10.
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Performance Cycle means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more performance criteria will be measured for the purpose of determining a grantees right to and the payment of a Performance Share Award, Restricted Stock Award or Restricted Stock Unit Award.
Performance Share Award means Awards granted pursuant to Section 9.
Restricted Stock Award means Awards granted pursuant to Section 6.
Restricted Stock Unit Award means Awards granted pursuant to Section 7.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
Stock means the Common Stock, par value $.001 per share, of the Company, subject to adjustments pursuant to Section 3.
Subsidiary means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities beginning with the Company if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50 percent or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. For purposes of the grant of an Incentive Stock Option, Subsidiary means a subsidiary corporation as determined under Section 424(f) of the Code.
Unrestricted Stock Award means any Award granted pursuant to Section 8.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a) Committee . The Plan shall be administered by either the Board or a committee, except as contemplated by Section 2(c), of not less than one director (in either case, the Administrator).
(b) Powers of Administrator . The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the individuals to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards, Unrestricted Stock Awards and Performance Share Awards, or any combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered by any Award;
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(iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan and consistent with the requirements of Section 409A of the Code, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of written instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii) and consistent with the requirements of Section 409A of the Code, to extend at any time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under what circumstances distribution or the receipt of Stock and other amounts payable with respect to an Award shall be deferred consistent with the requirements of Section 409A of the Code either automatically or at the election of the grantee and whether and to what extent the Company shall pay or credit amounts constituting interest (at rates determined by the Administrator) or dividends or deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards . The Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrators authority and duties with respect to the granting of Awards at or above Fair Market Value. Any such delegation by the Administrator shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price of any Stock Option, the conversion ratio or price of other Awards and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrators delegate or delegates that were consistent with the terms of the Plan.
(d) Indemnification . Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage which may be in effect from time to time.
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SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable . The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 1,055,089 shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the shares of Stock underlying any Awards which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. Subject to such overall limitation, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company and held in its treasury.
(b) Changes in Stock . Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Companys capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger, consolidation or sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number or kind of shares reserved for issuance under the Plan, (ii) the maximum number of shares that may be granted in the form of Incentive Stock Options, (iii) the maximum number of shares that may be granted under a Performance-based Award, (iv) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (v) the repurchase price per share subject to each outstanding Restricted Stock Award, and (vi) the price for each share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable. The adjustment by the Administrator shall be consistent with the requirements of Section 409A of the Code, if applicable, and shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
The Administrator, in its sole discretion, may also adjust the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, compliance with Section 409A of the Code, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Administrator that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided that no such adjustment shall be made in the case of an Incentive Stock Option, without the consent of the grantee, if it would constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code.
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(c) Mergers and Other Transactions . In the case of and subject to the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for a different kind of securities of the successor entity and the holders of the Companys outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, (iv) the sale of all or a majority of the outstanding capital stock of the Company to an unrelated person or entity or (v) any other transaction in which the owners of the Companys outstanding voting power prior to such transaction do not own at least a majority of the outstanding power of the successor entity immediately upon completion of the transaction (in each case, a Sale Event), the Plan and all outstanding Awards granted hereunder shall terminate upon the effective date of any such Sale Event, unless provision is made in connection with the Sale Event in the sole discretion of the parties thereto for the assumption or continuation of Awards theretofore granted (after taking into account any acceleration hereunder) by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. In the event of the termination of this Plan, except as provided in the following sentence, each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding vested Options held by such grantee, including those that will become vested upon the consummation of the Sale Event; provided, however, that the exercise of Options not vested prior to the Sale Event shall be subject to the consummation of the Sale Event. Notwithstanding the foregoing, the Committee shall have the authority in its sole discretion to terminate any outstanding vested Options by cashing out all or a portion of any unexercised vested Options on the date of the Sale Event in an amount determined as the excess, if any, of the Fair Market Value determined upon the consummation of the Sale Event over the exercise price for each such Option. The treatment of any Restricted Stock Awards and Restricted Stock Unit Awards in connection with any such Sale Event shall be as specified in the relevant Award agreement.
(d) Substitute Awards . The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances and consistent with the requirements under Section 409A of the Code. Any substitute Awards granted under the Plan shall not count against the Plan share limitation set forth in Section 3(a).
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full or part-time Participants of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.
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SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve. Award agreements need not be identical.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a subsidiary corporation within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after September 30, 2018.
(a) Stock Options Granted to Participants . The Administrator in its discretion may grant Stock Options to eligible Participants. Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable.
(i) Exercise Price . The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5(a) shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. The terms of any Non-Qualified Stock Option issued at less than 100 percent of the Fair Market Value on the date of grant shall include the additional terms and conditions necessary to comply with Section 409A of the Code. If a Participant owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and a Stock Option is granted to such employee, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.
(ii) Option Term . The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the term of such Stock Option shall be no more than five years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise . Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award agreement or as otherwise provided by the Administrator:
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(A) In cash, by certified or bank check or other instrument acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that have been beneficially owned by the optionee for at least six months and are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;
(C) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or
(D) By the optionee delivering to the Company a promissory note if the Board has expressly authorized the loan of funds to the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his Stock Option; provided that at least so much of the exercise price as represents the par value of the Stock shall be paid other than with a promissory note if otherwise required by state law.
Payment instruments will be received subject to collection. The delivery of certificates representing the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award agreement or applicable provisions of laws. In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of shares attested to.
(v) Annual Limit on Incentive Stock Options . To the extent required for incentive stock option treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(b) Reload Options . At the discretion of the Administrator, Options granted under the Plan may include a reload feature pursuant to which an optionee exercising an option by the delivery of a number of shares of Stock in accordance with Section 5(a)(iv)(B) hereof would
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automatically be granted an additional Option (with an exercise price equal to the Fair Market Value of the Stock on the date the additional Option is granted and with such other terms as the Administrator may provide) to purchase that number of shares of Stock equal to the sum of (i) the number delivered to exercise the original Option and (ii) the number withheld to satisfy tax liabilities, with an Option term equal to the remainder of the original Option term unless the Administrator otherwise determines in the Award agreement for the original Option grant.
(c) Non-transferability of Options . No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionees lifetime, only by the optionee, or by the optionees legal representative or guardian in the event of the optionees incapacity. Notwithstanding the foregoing, the Administrator, in its sole discretion, may provide in the Award agreement regarding a given Option that the optionee may transfer his Non-Qualified Stock Options to members of his immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards . A Restricted Stock Award is an Award entitling the recipient to acquire, at such purchase price as determined by the Administrator, shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant (Restricted Stock). Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Restricted Stock Award is contingent on the grantee executing a Restricted Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder . Upon execution of a written instrument setting forth the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Administrator shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 6(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank.
(c) Restrictions . Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award agreement. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 13 below, in writing after the Award agreement is issued, if a grantees employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, the Company shall have the right to repurchase Restricted Stock that has not vested at the time of termination from the grantee or the grantees legal representative at its original purchase price.
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(d) Vesting of Restricted Stock . The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Companys right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed vested. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 13 below, in writing after the Award agreement is issued, a grantees rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantees termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the Companys right of repurchase as provided in Section 6(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends . The Restricted Stock Award agreement may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. To the extent a Restricted Stock Award requires or permits a deferral of the Award or of the dividends, the Restricted Stock Award agreement shall include the additional terms and conditions necessary to comply with the requirements of Section 409A of the Code.
SECTION 7. RESTRICTED STOCK UNIT AWARDS
(a) Nature of Restricted Stock Unit Awards . A Restricted Stock Unit Award is an Award entitling the recipient to receive shares of Stock or an amount based on the value of such shares upon the vesting or designated period or event following vesting. Payment of shares underlying a Restricted Stock Unit Award may be deferred for a period specified by the Administrator at the time the Restricted Stock Unit Award is initially granted or (to the extent permitted by the Administrator) designated by the grantee pursuant to a timely deferral election made in accordance with the requirements of Section 409A of the Code. Restricted Stock Unit Awards subject to performance vesting may also be structured so that the underlying shares are convertible into shares of Stock (or a payment based on the value of the shares), but the rate at which each share is to so convert shall be based on the attained level of performance for each applicable performance objective. The grant of a Restricted Stock Unit Award is contingent on the grantee executing a Restricted Stock Award agreement.
(b) Vesting Provisions.
(i) Restricted Stock Unit Awards may, in the discretion of the Administrator, vest in one or more installments over the grantees period of service or upon the attainment of specified performance objectives.
(ii) Outstanding Restricted Stock Unit Awards shall automatically terminate without any payment if the designated performance goals or service requirements established for those Awards are not attained or satisfied. The Administrator, however, shall have the discretionary authority to make a payment under one or more outstanding Restricted Stock Unit Awards as to which the designated performance goals or service requirements have not been attained or satisfied.
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(c) Form of Payment . Restricted Stock Unit Awards that vest may be settled in (i) cash, (ii) shares of Stock valued at Fair Market Value on the payment date or (iii) a combination of cash and shares of Stock, as determined by the Administrator in its sole discretion.
(d) Restrictions . Prior to actual receipt of the shares of Stock which vest and become issuable pursuant to a Restricted Stock Unit Award, a grantee may not transfer any interest in the Restricted Stock Unit Award or the underlying shares of Stock, except as specifically provided herein or in the Restricted Stock Unit Award agreement.
(e) Stockholder Rights . The grantee shall not have any stockholder rights with respect to the shares of Stock subject to a Restricted Stock Unit Award until that Award vests and the shares of Stock are actually issued thereunder.
SECTION 8. UNRESTRICTED STOCK AWARDS
(a) Grant or Sale of Unrestricted Stock . The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award to any grantee pursuant to which such grantee may receive shares of Stock free of any restrictions (Unrestricted Stock) under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 9. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards . A Performance Share Award is an Award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Administrator may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. The Administrator in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals, the periods during which performance is to be measured, and all other limitations and conditions.
(b) Rights as a Stockholder . A grantee receiving a Performance Share Award shall have the rights of a stockholder only as to shares actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually received by the grantee. A grantee shall be entitled to receive a stock certificate evidencing the acquisition of shares of Stock under a Performance Share Award only upon satisfaction of all conditions specified in the Performance Share Award agreement (or in a performance plan adopted by the Administrator).
(c) Termination . Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 13 below, in writing after the Award agreement is issued, a grantees rights in all Performance Share Awards shall automatically terminate upon the grantees termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc . At any time prior to the grantees termination of employment (or other service relationship) by the Company and its Subsidiaries, the Administrator may in its sole discretion accelerate, waive or, subject to Section 13, amend any or all of the goals, restrictions or conditions applicable to a Performance Share Award.
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SECTION 10. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
Notwithstanding anything to the contrary contained herein, if any Restricted Stock Award, Restricted Stock Unit Award or Performance Share Award granted to a Covered Employee is intended to qualify as Performance-based Compensation under Section 162(m) of the Code and the regulations promulgated thereunder (a Performance-based Award), such Award shall be granted consistent with the requirements under Section 162(m) of the Code and shall comply with the provisions set forth below:
(a) Performance Criteria . The performance criteria used in performance goals governing Performance-based Awards granted to Covered Employees may include any or all of the following: (i) the Companys return on equity, assets, capital or investment, (ii) pre-tax or after-tax profit levels of the Company or any Subsidiary, a division, an operating unit or a business segment of the Company, or any combination of the foregoing; (iii) cash flow, funds from operations or similar measure; (iv) total shareholder return; (v) changes in the market price of the Stock; (vi) sales or market share; or (vii) earnings per share.
(b) Grant of Performance-based Awards . With respect to each Performance-based Award granted to a Covered Employee, the Committee shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the objective performance criteria for such grant, and the achievement targets with respect to each performance criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The objective performance criteria established by the Committee may be (but need not be) different for each Performance Cycle and different goals may be applicable to Performance-based Awards to different Covered Employees.
(c) Payment of Performance-based Awards . Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether, and to what extent, the objective performance criteria for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-based Awards earned for the Performance Cycle. The Committee shall then determine the actual size of each Covered Employees Performance-based Award, and, in doing so, may reduce or eliminate the amount of the Performance-based Award for a Covered Employee if, in its sole judgment, such reduction or elimination is appropriate.
(d) Maximum Award Payable . The maximum Performance-based Award payable to any one Covered Employee for any one calendar year under the Plan is 25,000 Shares (subject to adjustment as provided in Section 3(b) hereof).
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SECTION 11. TAX WITHHOLDING
(a) Payment by Grantee . Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Companys obligation to deliver stock certificates to any grantee is subject to and conditioned on tax obligations being satisfied by the grantee. The Companys obligation to deliver stock certificates to any grantee is subject to and is conditioned on tax obligations being satisfied by the grantee.
(b) Payment in Stock . Subject to approval by the Administrator, a grantee may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the grantee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a termination of employment or other participation:
(a) a transfer of the employment or other participation relationship to the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employees or other participants right to re-employment or resumed participation is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holders consent. If and to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, if and to the extent intended to so qualify, Plan amendments shall be subject to approval by the Companys stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 13 shall limit the Administrators authority to take any action permitted pursuant to Section 3(c).
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SECTION 14. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Companys obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.
SECTION 15. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements . The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Administrator may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.
(b) Delivery of Stock Certificates . Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantees last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee or other participant any right to continued employment or other participation with the Company or any Subsidiary.
(d) Trading Policy Restrictions . Option exercises and other Awards under the Plan shall be subject to such Companys insider trading policy related restrictions, terms and conditions as may be established by the Administrator, or in accordance with policies set up by the Administrator, as in effect from time to time.
(e) Loans to Award Recipients . The Company shall have the authority to make loans to grantees of Awards hereunder (including to facilitate the purchase of shares) and shall further have the authority to issue shares for promissory notes hereunder.
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(f) Designation of Beneficiary . Each grantee to which an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantees death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantees estate.
(g) Lock-Up Period . Each grantee agrees that, if so requested by the Company or any representatives of the underwriters (the Managing Underwriter) in connection with any registration of the offering of any securities of the Company under the Securities Act, such grantee shall not sell or otherwise transfer any share or other securities of the Company during the 180-day period (or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the Market Standoff Period) following the effective date of a registration statement for the Companys securities filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities being sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of the Market Stand-Off Period.
SECTION 16. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the stockholders of the Company in accordance with applicable law. Subject to such approval by the stockholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board.
SECTION 17. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.
SECTION 18. SECTION 409A
This Plan and the Awards authorized under the Plan may be nonqualified deferred compensation subject to the requirements of Section 409A of the Code. To the extent necessary, the Plan and all Awards shall be construed, interpreted and administered in a manner consistent with Section 409A of the Code. The Board and the Administrator may, at any time amend the Plan and any outstanding Awards in order to comply with rules, regulations or other guidance issued with respect to Section 409A of the Code.
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Exhibit 10.4
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE EVERQUOTE, INC.
FIRST AMENDED AND RESTATED 2008 STOCK INCENTIVE PLAN
Name of Optionee: See Option Grant Holder per eShares record of grant.
Number of Option Shares: See Quantity Per eShares record of grant.
Exercise Price: See Exercise Price per eShares record of grant.
Grant Date: See Grant Date per eShares record of grant.
Vesting Start Date: See Vesting Start per eShares record of grant.
Expiration Date: See Expiration of option grant per eShares expiration date.
Pursuant to the EverQuote, Inc. First Amended and Restated 2008 Stock Incentive Plan (the Plan ), EverQuote, Inc., a Delaware corporation (the Company ), hereby grants to the Optionee named above an option (the Option or Stock Option ) to purchase on or prior to the Expiration Date specified above all or part of the number of shares (the Option Shares ) of Common Stock, par value $0.001 per share (the Stock ) of the Company specified above at the Exercise Price (specified above), subject to the terms and conditions set forth herein and in the Plan.
1. Incentive Stock Option . This option is intended to qualify as an incentive stock option (Incentive Stock Option) within the meaning of Section 422 of the Code to the extent permitted. To the extent Option Shares having an aggregate Exercise Price in excess of $100,000 are exercisable for the first time in any year, such options will not qualify as Incentive Stock Option and shall constitute non-qualified stock options. Any provision of this Agreement or the Plan which conflicts with the Code is null and void and any ambiguities shall be resolved so that this option qualifies as an Incentive Stock Option.
2. Exercisability Schedule . No portion of this Stock Option may be exercised until such portion shall have become vested and exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder and the acceleration provisions contained in the Plan, this Stock Option shall be exercisable with respect to the following number of Option Shares according to the following schedule: on the last day of the twelfth (12 st ) full calendar month immediately following the Vesting Start Date, one-forth (1/4 or 25%) of the total number of Option Shares set forth above shall become exercisable and on the last day of each month thereafter, one-forty-eight (1/48 or 2.083%) of the total number of Option Shares set forth above shall become exercisable, until all of the Option Shares have become exercisable.
Once exercisable pursuant to the immediately preceding paragraph, the portion of this Stock Option so exercisable shall continue to be vested and exercisable prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
3. Manner of Exercise .
(a) Notice of Exercise . The Optionee may exercise this Option only in the following manner: from time to time on or prior to the Expiration Date of this Option, the Optionee may give written notice to the Administrator in a form of notice acceptable to Administrator or by electronic notice if directed by the Administrator of his or her election to purchase some or all of the vested Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased and the date of the exercise (the Exercise Date ), and shall be given no later than one (1) business day prior to the Exercise Date and no earlier than the date three (3) months before the Exercise Date.
(b) Payment . Payment of the purchase price for the Option Shares shall be made on or before the Exercise Date in cash, by certified or bank check, wire transfer or other instrument acceptable to the Administrator in an amount equal to the aggregate Exercise Price of Option Shares being exercised.
(c) Delivery . The delivery of certificates or ledger entry issuance representing the number of Option Shares purchased upon exercise of this Stock Option will be contingent upon the Companys receipt from the Optionee of full payment for the Option Shares, as set forth above and any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws, regulations, and transfer restrictions contained herein and in the Plan.
(d) Stock Certificates . Certificates or other evidence of issuance for the Option Shares shall be issued and delivered to the Optionee promptly upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such issuance and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company shall have issued and delivered the Option Shares to the Optionee, and the Optionees name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Option Shares subject only to the transfer restrictions contained herein and in the Plan.
(e) Minimum Exercise . The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(f) Expiration . Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.
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4. Continuous Employment Required . Except as otherwise provided in this Section 4, this Option may not be exercised unless the Optionee, at the time he or she exercises this Option, is, and has been at all times since the Grant Date, an employee of the Company.
(a) Termination Due to Death . If the Optionees employment terminates by reason of death, this Option, to the extent exercisable on the date of Optionees death may be exercised by the Optionees legal representative or legatee for a period of six months from the date of death or until the Expiration Date, if earlier.
(b) Termination Due to Disability . If the Optionees employment terminates by reason of disability (as determined by the Administrator), this Option, to the extent exercisable on the date of termination, may be exercised by the Optionee for a period of six months from the date of termination or until the Expiration Date, if earlier. The death of the Optionee during the six-month period provided in this Section 4(b) shall extend such period for another six months from the date of death or until the Expiration Date, if earlier.
(c) Termination for Cause . If the Optionees employment terminates for Cause (as defined in the Plan), this Option shall terminate immediately and be of no further force and effect.
(d) Other Termination . If the Optionees employment terminates for any reason other than death, disability, or Cause, and unless otherwise determined by the Administrator, this Option may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. If this Option is not exercisable on the date of termination, this Option shall terminate immediately and be of no further force or effect.
The Administrators determination of the reason for termination of the Optionees employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.
5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6. Transferability . This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionees lifetime, only by the Optionee, and thereafter, only by the Optionees legal representative or legatee.
7. Withholding Taxes . The Companys obligation to deliver shares of Common Stock upon the exercise of this option shall be subject to the Optionees satisfaction of all applicable federal, state and local income and employment tax withholding requirements. If the Company, in its discretion, determines that it must or should withhold or pay over tax with respect to the exercise of this Option or a Disqualifying Disposition (as defined in Section 8 below), the Optionee hereby agrees that, at the option of the Company, Optionee will pay to the Company or the Company may withhold from the Optionees wages the appropriate amount of
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federal, state and local withholding taxes attributable to such Disqualifying Disposition. If any portion of this option is treated as a non-qualified option, the Optionee hereby agrees that, at the option of the Company, Optionee will pay to the Company or the Company may withhold from the Optionees wages the appropriate amount of federal, state and local withholding taxes attributable to the Optionees exercise of such non-qualified option. At the Companys discretion, the amount required to be withheld may be withheld in cash from such wages, or (with respect to compensation income attributable to the exercise of this option) in kind from the Option Shares otherwise deliverable to the Optionee on exercise of this Option. The Optionee further agrees that, if the Company does not withhold an amount from the Optionees wages sufficient to satisfy the Companys withholding obligation, the Optionee will reimburse the Company on demand, in cash, for the amount that should have been withheld.
8. Disqualifying Disposition . Although the parties intend that this option shall qualify as an Incentive Stock Option, if this option is determined not to be an Incentive Stock Option, the Optionee understands that the Company is not responsible to compensate the Optionee or otherwise make up for the treatment of this option as a non-qualified stock option. The Optionee should consult with the Optionees own tax advisors regarding the tax effects of this Option and the requirements necessary to obtain favorable treatment under the Code, including, but not limited to, holding period requirements. The Optionee agrees to notify the Company in writing immediately after the Optionee makes a Disqualifying Disposition of any Option Shares. A Disqualifying Disposition is any disposition (whether by sale, exchange, gift, transfer, or otherwise) of any Option Shares before the later of (a) two years after the Grant Date of this option or (b) one year after the date the Optionee acquired shares by exercising this Option. If the Optionee dies before such shares are sold, these holding period requirements do not apply and no Disqualifying Disposition would occur. The Optionee also agrees to provide the Company with any information which it shall request concerning any such disposition. The Optionee acknowledges that he or she will forfeit the favorable income tax treatment otherwise available with respect to the exercise of this Incentive Stock Option if he or she makes a Disqualifying Disposition of any Option Shares.
9. Investment Representations . The Optionee represents, warrants and covenants that:
(a) Any Option Shares shall be acquired for the Optionees account for investment only and not with a view to, or for sale in connection with, any distribution of such shares in violation of the Securities Act of 1933 or any rule or regulation thereunder (the Securities Act ).
(b) The Optionee has had such opportunity as he or she has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Optionee to evaluate the merits and risks of his or her investment in the Company.
(c) The Optionee is able to bear the economic risk of holding Option Shares for an indefinite period.
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(d) The Optionee understands that (i) the Option Shares will not be registered under the Securities Act and are restricted securities within the meaning of Rule 144 under the Securities Act; (ii) such shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) in any event, an exemption from registration under Rule 144 or otherwise under the Securities Act may not be available for at least six (6) months from the date of acquisition of the Option Shares and even then will not be available unless a public market then exists for the Stock, adequate information concerning the Company is then available to the public and other terms and conditions of Rule 144 are complied with; and (iv) there is now no registration statement on file with the Securities and Exchange Commission with respect to any stock of the Company and the Company has no obligation or current intention to register any shares acquired pursuant to the exercise of this option under the Securities Act.
(e) The Optionee agrees that if the Company offers any of its Stock for sale pursuant to a registration statement under the Securities Act, the Optionee will not, without the prior written consent of the Company, offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any Option Shares for a period of at least 90 days (or such longer period as the managing underwriters of such offering reasonably request) after the effective date of such registration statement.
By making payment upon exercise of this option, the Optionee shall be deemed to have reaffirmed, as of the date of such payment, the representations made in this Section 9.
10. Restrictions on Transfer . Upon exercise of this Stock Option in whole or in part, the Option Shares purchased shall be subject to the following restrictions on transfer:
(a) Restrictions . The Optionee may not sell, transfer, pledge, hypothecate, give away or in any other manner dispose of or encumber, whether voluntarily or by operation of law, any Option Shares or interests therein (collectively, a Transfer ), unless (i) such Transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities), (ii) such Transfer is in accordance with the terms and conditions of one or more provisions of Section 10(b), (iii) such Transfer is not prohibited by one or more provisions of Section 10(c) and (iv) such Transfer does not cause the Company to become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Any attempted Transfer of Option Shares not in accordance with the terms and conditions of this Section 10 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Option Shares as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer (including for dividend, voting and tax purposes), and shall not in any way give effect to any such Transfer. In connection with any transfer of Option Shares, the Company may require the transferor to provide, at the Optionees own expense, an opinion of counsel to the transferor, in a form satisfactory to the Company, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act).
(b) Permitted Transfers . Subject to the provisions of Section 10(c), Option Shares may be transferred pursuant to the specific terms and conditions set forth in either paragraph (i) or (ii) of this Section 10(b):
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(i) Transfer to Related Person . The Optionee may transfer Option Shares: (A) to the Optionees spouse, parents, brothers, sisters, children (natural or adopted), stepchildren or grandchildren or any trust for the exclusive benefit of any of them; or (B) upon the Optionees death to the Optionees estate, executors, administrators and personal representatives and then to the Optionees heirs, legatees or distributees; provided that any Option Shares transferred under this Section 10(b)(i) shall remain subject to the provisions of this Agreement. Any transferee of Option Shares under this Section 10(b)(i) shall become a party to this Agreement (including this Section 10) by executing a counterpart hereof, and shall be bound by the provisions of this Agreement whether or not such transferee does so.
(ii) Right of First Refusal . The Optionee may sell Option Shares to a third party in a bona fide transaction for fair value payable in cash or the equivalent currently or in future installments, provided that the Optionee extends to the Company a right of first refusal with respect to such sale in accordance with the following provisions. The Optionee shall first give written notice of such proposed sale to the Company, identifying the proposed purchaser, the number of Option Shares to be sold, and the purchase price and terms of the proposed sale. The Company shall have the right, exercisable by written notice to the Optionee within thirty (30) days after receipt of the Optionees notice, to purchase all, but not less than all, of the Option Shares referred to in the Optionees notice, at the price and on the terms set forth in said notice. The Company shall designate in such notice a date, time and place for the closing of the repurchase (the Closing ), which shall be not more than sixty (60) days after the date of the Companys notice, unless otherwise agreed by the parties. The Company may assign its rights hereunder with respect to a particular transfer by written notice to the selling Optionee at or prior to the Closing. The Closing shall take place at the offices of the Company or of its counsel, unless otherwise agreed by the parties. At the Closing, the Company or its assignee (the Purchaser ) shall purchase from the selling Optionee (the Seller ) the Option Shares referenced in the Optionees notice, at the price and on the terms set forth therein, and the Seller shall sell such Option Shares to the Purchaser by delivery of the certificate or certificates representing such Option Shares, duly endorsed for transfer, free and clear of any liens, pledges or encumbrances. If the Company does not exercise its purchase right within thirty (30) days after the Optionees notice to the Company, the Stockholder may complete the sale of Option Shares to the proposed purchaser at the price and on the terms specified in the Optionees notice to the Company at any time within sixty (60) days after the expiration of said thirty (30)-day period. No sale may be made to a different purchaser, at a different price, on different terms or after the expiration of said sixty (60)-day period without renewed compliance with this Section 10(b)(ii). Any Option Shares purchased in accordance with the provisions of this Section 10(b)(ii) shall thereafter remain subject to the prohibitions of Section 10(c), but shall no longer be subject to any of the other terms of this Agreement.
(c) Prohibited Transfers . Notwithstanding any other provisions of this Agreement, the Optionee may not Transfer Option Shares to any person who is engaged in substantial competition with the Company, whether directly or indirectly, either as principal, director, officer, employee, consultant or holder of more than 2% of the outstanding voting stock of a competitive entity; such restriction shall apply whether or not such Transfer is otherwise permitted under Section 10(b).
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11. Miscellaneous .
(a) Notice. Any notice hereunder shall be given to the Company at its principal place of business, and shall be given to the Optionee at the address set forth below, or in either case at such other address as one party may subsequently furnish to the other party in writing.
(b) Entire Agreement. This Agreement, together with the Plan, constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. Except as provided herein, this option may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Optionee
(c) Rights as an Option Shareholder . The Optionee shall have no rights as a shareholder with respect to any shares which may be purchased by exercise of this option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) unless and until a certificate representing such shares is duly issued and delivered to the Optionee. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
(d) No Special Employment Rights. This Stock Option does not confer upon the Optionee any rights with respect to continuance of employment by the Company or any Subsidiary.
(e) Governing Law. This option shall be governed by and construed in accordance with the laws of the State of Delaware.
(f) No Obligation to Exercise. The grant and acceptance of this option imposes no obligation on the Optionee to exercise it.
(g) Severability . The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.
EVERQUOTE, INC. | ||
By: | ||
Name: | Seth Birnbaum | |
Title: | President and Chief Executive Officer |
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Exhibit 10.5
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE EVERQUOTE, INC.
FIRST AMENDED AND RESTATED 2008 STOCK INCENTIVE PLAN
Name of Optionee:
Number of Option Shares:
Exercise Price:
Grant Date:
Vesting Start Date:
Expiration Date:
Pursuant to the EverQuote, Inc. First Amended and Restated 2008 Stock Incentive Plan, as amended and in effect (the Plan ), EverQuote, Inc., a Delaware corporation (the Company ), hereby grants to the Optionee named above an option (the Option or Stock Option ) to purchase on or prior to the Expiration Date specified above all or part of the number of shares (the Option Shares ) of Common Stock, par value $0.001 per share (the Stock ) of the Company specified above at the Exercise Price (specified above), subject to the terms and conditions set forth herein and in the Plan.
1. Nonqualified Stock Option . This Option is not to be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
2. Exercisability Schedule . No portion of this Stock Option may be exercised until such portion shall have become vested and exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder and the acceleration provisions contained in the Plan, this Stock Option shall be exercisable with respect to the following number of Option Shares according to the following schedule: on the last day of the twelfth (12 th ) full calendar month immediately following the Vesting Start Date, one-fourth (1/4 or 25%) of the total number of Option Shares set forth above shall become exercisable and on the last day of each month thereafter, one-forty-eighth (1/48 or 2.083%) of the total number of Option Shares set forth above shall become exercisable, until all of the Option Shares have become exercisable.
Once exercisable pursuant to the immediately preceding paragraph, the portion of this Stock Option so exercisable shall continue to be vested and exercisable prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
3. Manner of Exercise .
(a) Notice of Exercise . The Optionee may exercise this Option only in the following manner: from time to time on or prior to the Expiration Date of this Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the vested Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased and the date of the exercise (the Exercise Date ), and shall be given no later than one (1) business day prior to the Exercise Date and no earlier than the date three (3) months before the Exercise Date.
(b) Payment . Payment of the purchase price for the Option Shares shall be made on or before the Exercise Date in cash, by certified or bank check, wire transfer or other instrument acceptable to the Administrator in an amount equal to the aggregate Exercise Price of Option Shares being exercised.
(c) Delivery . The delivery of certificates representing the number of Option Shares purchased upon exercise of this Stock Option will be contingent upon the Companys receipt from the Optionee of full payment for the Option Shares, as set forth above and any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws, regulations, and transfer restrictions contained herein and in the Plan.
(d) Stock Certificates . Certificates for the Option Shares shall be issued and delivered to the Optionee promptly upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such issuance and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company shall have issued and delivered the Option Shares to the Optionee, and the Optionees name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Option Shares subject only to the transfer restrictions contained herein and in the Plan.
(e) Minimum Exercise . The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(f) Expiration . Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.
4. Continuous Employment Required . Except as otherwise provided in this Section 4, this Option may not be exercised unless the Optionee, at the time he or she exercises this Option, is, and has been at all times since the Grant Date, an employee of the Company.
(a) Termination Due to Death . If the Optionees employment terminates by reason of death, this Option, to the extent exercisable on the date of Optionees death may be exercised by the Optionees legal representative or legatee for a period of six months from the date of death or until the Expiration Date, if earlier.
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(b) Termination Due to Disability . If the Optionees employment terminates by reason of disability (as determined by the Administrator), this Option, to the extent exercisable on the date of termination, may be exercised by the Optionee for a period of six months from the date of termination or until the Expiration Date, if earlier. The death of the Optionee during the six-month period provided in this Section 4(b) shall extend such period for another six months from the date of death or until the Expiration Date, if earlier.
(c) Termination for Cause . If the Optionees employment terminates for Cause (as defined in the Plan), this Option shall terminate immediately and be of no further force and effect.
(d) Other Termination . If the Optionees employment terminates for any reason other than death, disability, or Cause, and unless otherwise determined by the Administrator, this Option may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. If this Option is not exercisable on the date of termination, this Option shall terminate immediately and be of no further force or effect.
The Administrators determination of the reason for termination of the Optionees employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.
5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6. Transferability . This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionees lifetime, only by the Optionee, and thereafter, only by the Optionees legal representative or legatee.
7. Withholding Taxes . The Companys obligation to deliver shares of Common Stock upon the exercise of this option shall be subject to the Optionees satisfaction of all applicable federal, state and local income and employment tax withholding requirements. If the Company, in its discretion, determines that it must or should withhold or pay over tax with respect to the exercise of this Option or a Disqualifying Disposition (as defined in Section 8 below), the Optionee hereby agrees that, at the option of the Company, Optionee will pay to the Company or the Company may withhold from the Optionees wages the appropriate amount of federal, state and local withholding taxes attributable to such Disqualifying Disposition. If any portion of this option is treated as a non-qualified option, the Optionee hereby agrees that, at the option of the Company, Optionee will pay to the Company or the Company may withhold from the Optionees wages the appropriate amount of federal, state and local withholding taxes attributable to the Optionees exercise of such non-qualified option. At the Companys discretion,
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the amount required to be withheld may be withheld in cash from such wages, or (with respect to compensation income attributable to the exercise of this option) in kind from the Option Shares otherwise deliverable to the Optionee on exercise of this Option. The Optionee further agrees that, if the Company does not withhold an amount from the Optionees wages sufficient to satisfy the Companys withholding obligation, the Optionee will reimburse the Company on demand, in cash, for the amount that should have been withheld.
8. Investment Representations . The Optionee represents, warrants and covenants that:
(a) Any Option Shares shall be acquired for the Optionees account for investment only and not with a view to, or for sale in connection with, any distribution of such shares in violation of the Securities Act of 1933 or any rule or regulation thereunder (the Securities Act ).
(b) The Optionee has had such opportunity as he or she has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Optionee to evaluate the merits and risks of his or her investment in the Company.
(c) The Optionee is able to bear the economic risk of holding Option Shares for an indefinite period.
(d) The Optionee understands that (i) the Option Shares will not be registered under the Securities Act and are restricted securities within the meaning of Rule 144 under the Securities Act; (ii) such shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) in any event, an exemption from registration under Rule 144 or otherwise under the Securities Act may not be available for at least six (6) months from the date of acquisition of the Option Shares and even then will not be available unless a public market then exists for the Stock, adequate information concerning the Company is then available to the public and other terms and conditions of Rule 144 are complied with; and (iv) there is now no registration statement on file with the Securities and Exchange Commission with respect to any stock of the Company and the Company has no obligation or current intention to register any shares acquired pursuant to the exercise of this option under the Securities Act.
(e) The Optionee agrees that if the Company offers any of its Stock for sale pursuant to a registration statement under the Securities Act, the Optionee will not, without the prior written consent of the Company, offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any Option Shares for a period of at least 90 days (or such longer period as the managing underwriters of such offering reasonably request) after the effective date of such registration statement.
By making payment upon exercise of this option, the Optionee shall be deemed to have reaffirmed, as of the date of such payment, the representations made in this Section 9.
9. Restrictions on Transfer . Upon exercise of this Stock Option in whole or in part, the Option Shares purchased shall be subject to the following restrictions on transfer:
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(a) Restrictions . The Optionee may not sell, transfer, pledge, hypothecate, give away or in any other manner dispose of or encumber, whether voluntarily or by operation of law, any Option Shares or interests therein (collectively, a Transfer ), unless (i) such Transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities), (ii) such Transfer is in accordance with the terms and conditions of one or more provisions of Section 10(b), (iii) such Transfer is not prohibited by one or more provisions of Section 10(c) and (iv) such Transfer does not cause the Company to become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Any attempted Transfer of Option Shares not in accordance with the terms and conditions of this Section 10 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Option Shares as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer (including for dividend, voting and tax purposes), and shall not in any way give effect to any such Transfer. In connection with any transfer of Option Shares, the Company may require the transferor to provide, at the Optionees own expense, an opinion of counsel to the transferor, in a form satisfactory to the Company, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act).
(b) Permitted Transfers . Subject to the provisions of Section 10(c), Option Shares may be transferred pursuant to the specific terms and conditions set forth in either paragraph (i) or (ii) of this Section 10(b):
(i) Transfer to Related Person . The Optionee may transfer Option Shares: (A) to the Optionees spouse, parents, brothers, sisters, children (natural or adopted), stepchildren or grandchildren or any trust for the exclusive benefit of any of them; or (B) upon the Optionees death to the Optionees estate, executors, administrators and personal representatives and then to the Optionees heirs, legatees or distributees; provided that any Option Shares transferred under this Section 10(b)(i) shall remain subject to the provisions of this Agreement. Any transferee of Option Shares under this Section 10(b)(i) shall become a party to this Agreement (including this Section 10) by executing a counterpart hereof, and shall be bound by the provisions of this Agreement whether or not such transferee does so.
(ii) Right of First Refusal . The Optionee may sell Option Shares to a third party in a bona fide transaction for fair value payable in cash or the equivalent currently or in future installments, provided that the Optionee extends to the Company a right of first refusal with respect to such sale in accordance with the following provisions. The Optionee shall first give written notice of such proposed sale to the Company, identifying the proposed purchaser, the number of Option Shares to be sold, and the purchase price and terms of the proposed sale. The Company shall have the right, exercisable by written notice to the Optionee within thirty (30) days after receipt of the Optionees notice, to purchase all, but not less than all, of the Option Shares referred to in the Optionees notice, at the price and on the terms set forth in said notice. The Company shall designate in such notice a date, time and place for the closing of the repurchase (the Closing ), which shall be not more than sixty (60) days after the date of the Companys notice, unless otherwise agreed by the parties. The Company may assign its rights hereunder with respect to a particular transfer by written notice to the selling Optionee at or prior to the Closing. The Closing shall take place at the offices of the Company or of its counsel, unless otherwise agreed by the parties. At the Closing, the Company or its assignee (the Purchaser ) shall purchase from the selling Optionee (the Seller ) the
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Option Shares referenced in the Optionees notice, at the price and on the terms set forth therein, and the Seller shall sell such Option Shares to the Purchaser by delivery of the certificate or certificates representing such Option Shares, duly endorsed for transfer, free and clear of any liens, pledges or encumbrances. If the Company does not exercise its purchase right within thirty (30) days after the Optionees notice to the Company, the Stockholder may complete the sale of Option Shares to the proposed purchaser at the price and on the terms specified in the Optionees notice to the Company at any time within sixty (60) days after the expiration of said thirty (30)-day period. No sale may be made to a different purchaser, at a different price, on different terms or after the expiration of said sixty (60)-day period without renewed compliance with this Section 10(b)(ii). Any Option Shares purchased in accordance with the provisions of this Section 10(b)(ii) shall thereafter remain subject to the prohibitions of Section 10(c), but shall no longer be subject to any of the other terms of this Agreement.
(c) Prohibited Transfers . Notwithstanding any other provisions of this Agreement, the Optionee may not Transfer Option Shares to any person who is engaged in substantial competition with the Company, whether directly or indirectly, either as principal, director, officer, employee, consultant or holder of more than 2% of the outstanding voting stock of a competitive entity; such restriction shall apply whether or not such Transfer is otherwise permitted under Section 10(b).
10. Miscellaneous .
(a) Notice. Any notice hereunder shall be given to the Company at its principal place of business, and shall be given to the Optionee at the address set forth below, or in either case at such other address as one party may subsequently furnish to the other party in writing.
(b) Entire Agreement. This Agreement, together with the Plan, constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. Except as provided herein, this option may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Optionee
(c) Rights as an Option Shareholder . The Optionee shall have no rights as a shareholder with respect to any shares which may be purchased by exercise of this option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) unless and until a certificate representing such shares is duly issued and delivered to the Optionee. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
(d) No Special Employment Rights. This Stock Option does not confer upon the Optionee any rights with respect to continuance of employment by the Company or any Subsidiary.
(e) Governing Law. This option shall be governed by and construed in accordance with the laws of the State of Delaware.
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(f) No Obligation to Exercise. The grant and acceptance of this option imposes no obligation on the Optionee to exercise it.
(g) Severability . The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.
EVERQUOTE, INC. | ||
By: | ||
Name: Seth Birnbaum | ||
Title: President and Chief Executive Officer |
The foregoing Nonqualified Stock Option Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.
Dated: |
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Optionees Signature | ||||||||
Optionees name and address: | ||||||||
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Exhibit 10.6
EVERQUOTE, INC.
RESTRICTED STOCK UNIT ISSUANCE AGREEMENT
RECITALS
A. The Company has adopted the Plan for the purpose of retaining the services of selected officers, employees, directors and other key persons of the Company (or any Subsidiary).
B. Participant is to render valuable services to the Company (or a Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Companys issuance of an equity incentive award under the Plan designed to retain Participants continued service.
C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A or the Plan.
NOW, THEREFORE , it is hereby agreed as follows:
1. Grant of Restricted Stock Units . The Company hereby awards to Participant, as of the Award Date, the number of Restricted Stock Units (RSUs) set forth below, subject to the vesting and other conditions of this Agreement. Each RSU that vests shall entitle Participant to receive one share of Stock on the issuance date. The number of RSUs awarded, the applicable vesting schedule for the RSUs, the applicable date or dates on which the shares subject to those vested RSUs shall become issuable to Participant and the remaining terms and conditions governing the Award shall be as set forth in this Agreement.
Participant |
[____________] | |
Award Date: |
[____________] | |
Number of RSUs: |
[______] | |
Vesting Schedule: |
The RSUs shall vest as described in Paragraph 2 below. |
2. Vesting Requirements . The RSUs shall vest only if a Liquidity Event occurs prior to [8 years from start of Service Period]. If a Liquidity Event does not occur prior to [8 years from start of Service Period], Participant will forfeit the total number of RSUs subject to the Award. A Liquidity Event that occurs prior to [8 years from start of Service Period] shall be referred to as the Initial Vesting Event. The number of RSUs that vest upon or following an Initial Vesting Event shall be determined as follows:
(i) The number of RSUs that vest on the Initial Vesting Event, whether or not Participant continues in Service through the Initial Vesting Event, shall be determined by multiplying (x) the total number of RSUs subject to this Award by (y) a fraction, the numerator of which is the number of months of actual Service completed by Participant in the Service Period (rounded down to the closest whole month), and the denominator of which is 48 months.
(ii) If Participant continues in Service through the Initial Vesting Event, then with respect to RSUs that have not vested as of such Initial Vesting Date, vesting shall be determined as follows:
(a) If the Initial Vesting Event is a Sale Event, then vesting of the unvested RSUs will be determined under Paragraph 4.
(b) If the Initial Vesting Event is an IPO, vesting of any unvested RSUs shall continue in accordance with the Service Vesting Schedule, subject to Participants continued Service through each monthly vesting date during the Service Period, provided, however, that for the purposes of this Section 2(A)(ii)(b), the Initial Vesting Event shall not commence until the later of (x) six months following the IPO and (y) such period of time following the IPO that shares of capital stock underlying the relevant RSUs are no longer subject to any lock-up or market standoff agreement on the part of the Participant.
B. Each date on which any RSUs vest following the Initial Vesting Event shall be referred to herein as a Subsequent Vesting Event.
C. If Participants Service ceases for any reason prior to completion of the Service Period, then subject to Paragraph 4 Participant will forfeit the number of RSUs determined by multiplying (x) the total number of RSUs subject to this Award by (y) a fraction, the numerator of which is the number of months remaining in the Service Period (rounded up the closest whole month), and the denominator of which is 48 months.
3. Limited Transferability . Prior to actual receipt of the shares of Stock which become issuable upon vesting of the RSUs hereunder, Participant may not transfer any interest in the Award or the underlying shares of Stock. Any shares of Stock issuable under RSUs that vest hereunder but which otherwise remain unissued at the time of Participants death may be transferred pursuant to the provisions of Participants will or the laws of inheritance or to Participants designated beneficiary or beneficiaries of this Award. Participant may also direct the Company to re-issue the stock certificates for any shares which become issuable under the Award with respect to vested RSUs during his or her lifetime to one or more designated family members or a trust established for Participant and/or his or her family members. Participant may make such a beneficiary designation or certificate directive at any time by filing the appropriate form with the Administrator or its designee.
4. Sale Event .
A. The unvested RSUs subject to the Award, to the extent outstanding at the time of a Sale Event, as determined in accordance with Paragraph 2, may be assumed by the successor entity or otherwise continued in full force and effect.
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B. In the event unvested RSUs subject to the Award are assumed or otherwise continued in effect, such units will be adjusted immediately after the consummation of the Sale Event so as to apply to the number and class of securities into which the shares of Stock subject to those units immediately prior to the Sale Event would have been converted in consummation of that Sale Event had those shares actually been issued and outstanding at that time. To the extent the actual holders of the outstanding shares of Stock receive cash consideration for the shares in consummation of the Sale Event, the successor corporation may, in connection with the assumption or continuation of the RSUs subject to the Award at that time, substitute one or more of its own shares with a fair market value equivalent to the cash consideration paid per share in the Sale Event transaction, provided such shares are readily tradable on an established securities exchange. The RSUs as so assumed shall vest (or continue to vest) in accordance with the Service Vesting Schedule subject to Participants continued Service on each monthly vesting date during the Service Period.
C. For the avoidance of doubt, this Paragraph 4 applies to RSUs that are outstanding as of the Sale Event, and does not apply to any RSUs that have been forfeited or cancelled prior to the Sale Event. If a Sale Event does not occur prior to [ ], all outstanding RSUs shall be cancelled at such time.
5. Shareholder Rights . Participant shall not have any shareholder rights, including voting, dividend or liquidation rights, with respect to the shares of Stock subject to the RSUs under the Award until the underlying RSUs vest and Participant becomes the record holder of those shares upon their actual issuance.
6. Issuance of Shares/Collection of Withholding Taxes .
A. The shares of Stock subject to RSUs in which Participant vests in accordance with Paragraph 2 shall be issued upon the occurrence of the Initial Vesting Event or any Subsequent Vesting Event, as applicable, or as soon thereafter as administratively practicable, but in no event later than the close of the calendar year in which the Initial Vesting Event or Subsequent Vesting Event occurs or (if later) the fifteenth day of the third calendar month following such Initial Vesting Event or Subsequent Vesting Event.
B. The Withholding Taxes with respect to the shares of Stock which become issuable hereunder with respect to vested RSUs on any vesting date may be paid by one of the following methods at the election of the Participant:
(i) Delivery of a check by Participant, or
(ii) through an automatic share withholding procedure pursuant to which the Company will withhold, at the time of such issuance, a portion of the shares with a Fair Market Value (measured as of the issuance date) equal to the amount of those taxes; provided, however , that the amount of any shares so withheld shall not exceed the amount necessary to satisfy the Companys required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes that are applicable to supplemental taxable income, notwithstanding the foregoing, the Company may cause Participant to withhold taxes from the proceeds of the sale of the shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on Participants behalf and Participant hereby authorize such sales by this authorization); all under such rules as may be established by the Administrator and in compliance with any then applicable Company insider trading policy or
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10b5-1 trading plan; provided however, that if Participant is a Section 16 officer of the Company under the Exchange Act, then the Administrator (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from the alternatives above, and the Administrator shall establish the method prior to the tax withholding event.
C. Except as otherwise provided in Paragraph 4 and Paragraph 6.B, the settlement of all RSUs which vest under the Award shall be made solely in shares of Stock. In no event, however, shall any fractional shares be issued. Accordingly, the total number of shares of Stock to be issued pursuant to this Award shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.
7. Compliance with Laws and Regulations .
A. The issuance of shares of Stock pursuant to the Award shall be subject to compliance by the Company and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which the Stock may be listed for trading at the time of such issuance. This Agreement and the Award shall be subject to any required approvals by any governmental or regulatory agencies. This award of RSUs shall also be subject to any applicable clawback or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to time in accordance with applicable law.
B. The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Stock pursuant to this Award shall relieve the Company of any liability with respect to the non-issuance or sale of the Stock as to which such approval shall not have been obtained. The Company, however, shall use its best efforts to obtain all such approvals.
C. The Award and underlying shares of Stock have not been registered under the 1933 Act and are being issued to Participant in reliance upon the exemption from such registration provided by SEC Rule 701 for share issuances under compensatory benefit plans such as the Plan. Participant hereby confirms that Participant has been informed that the shares of Stock are restricted securities under the 1933 Act and may not be resold or transferred in the United States unless the shares of Stock are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Participant hereby acknowledges that Participant is acquiring the shares for investment purposes only and not with a view to resale in the United States and that Participant is aware that SEC Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the shares in the United States from the registration requirements of the 1933 Act.
8. Cancellation or Amendment . The Award may be canceled or amended by the Board, in whole or in part, in accordance with the applicable terms of the Plan.
9. Notices . Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participants signature line on this Agreement. All notices shall be deemed effective upon personal delivery or upon deposit in the mail, postage prepaid and properly addressed to the party to be notified.
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10. Successors and Assigns . Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Participant, Participants assigns, the legal representatives, heirs and legatees of Participants estate and any beneficiaries of the Award designated by Participant.
11. Construction . This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan (a copy of which is attached hereto as Exhibit A) and are in all respects limited by and subject to the terms of the Plan. All decisions of the Board or the Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award. To the extent there is any ambiguity as to whether any provision of this Agreement would otherwise contravene one or more applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder, such provision shall be interpreted and applied in a manner that complies with the applicable requirements of Code Section 409A and the Treasury Regulations thereunder. For purposes of Code Section 409A, each installment distribution of shares of Stock (or other installment distribution hereunder) shall be treated as a separate payment, and Participants right to receive each such installment of shares (or other installment distribution hereunder) shall accordingly be treated as a right to receive a series of separate payments. In no event shall Participant, directly or indirectly, designate the calendar year of distribution.
12. Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of Delaware without resort to that States conflict-of-laws rules.
13. Employment at Will . Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participants Service at any time for any reason, with or without cause.
IN WITNESS WHEREOF , the parties have executed this Restricted Stock Unit Issuance Agreement on the respective dates indicated below.
EVERQUOTE, INC. | ||
By: | ||
Dated: , 2017 | ||
[ ] |
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Signature: |
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Address: |
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Dated: |
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,2017 |
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APPENDIX A
DEFINITIONS
The following definitions shall be in effect under the Agreement:
A. Agreement means this Restricted Stock Unit Issuance Agreement.
B. Award means the Restricted Stock Unit Award made to Participant pursuant to the terms of the Agreement.
C. Award Date means the date the Award is granted to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.
D. Board means the Companys Board of Directors.
E. Code means the Internal Revenue Code of 1986, as amended.
F. Company means EverQuote, Inc., and any successor corporation to all or substantially all of the assets or voting stock of EverQuote, Inc., which shall by appropriate action adopt the Plan and/or assume the Award.
G. Employee means an individual who is in the employ of the Company (or any Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
H. Fair Market Value per share of Stock has the meaning set forth in the Plan.
I. Liquidity Event means either (a) the consummation of a Sale Event or (b) an IPO.
J. IPO means the initial public offering of the Stock.
K. 1933 Act means the Securities Act of 1933, as amended.
L. Participant means the person to whom the Award is made pursuant to the Agreement.
M. Plan means the Companys 2008 Stock Incentive Plan.
N. Restricted Stock Unit means each unit subject to the Award which shall entitle Participant to receive one (1) share of Stock upon the vesting of that unit.
O. Sale Event shall have the meaning assigned to such term in the Plan.
P. SEC means the U.S. Securities and Exchange Commission.
Q. Service means Participants performance of services for the Company (or any Subsidiary) in the capacity of an Employee, a director of the Company or a consultant. Participant shall be deemed to cease Service immediately upon the occurrence of either of the following events: (i) Participant no longer performs services in any of the foregoing capacities for the Company (or any Subsidiary) or (ii) the entity for which Participant performs such services ceases to remain a Subsidiary of the Company, even though Participant may subsequently continue to perform services for that entity. Service as an Employee shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Company; provided, however , that except to the extent otherwise required by law or expressly authorized by the Board or by the Companys written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period Participant is on a leave of absence.
R. Service Period means the four-year period commencing on [_________].
S. Stock means the Common Stock, par value $.001 per share, of the Company, subject to adjustment pursuant to the terms of the Plan.
T. Subsidiary means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities beginning with the Company if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing fifty percent or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain.
U. Withholding Taxes means (i) the employee portion of the federal, state and local employment taxes required to be withheld by the Company in connection with the vesting of the RSUs under the Award and (ii) the federal, state and local income taxes required to be withheld by the Company in connection with the issuance of shares under those vested RSUs.
EXHIBIT A
Amended and Restated 2008 Stock Incentive Plan
Exhibit 10.10
LEASE
by and between
BMR-BROADWAY LLC,
a Delaware limited liability company
and
ADHARMONICS, INC.,
a Delaware corporation
LEASE
THIS LEASE (this Lease ) is entered into as of this 24 th day of July, 2013 (the Execution Date ), by and between BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ), and ADHARMONICS, INC., a Delaware corporation (Tenant).
RECITALS
A. WHEREAS, Landlord owns certain real property (the Property ) and the improvements on the Property located at 210 Broadway, Cambridge, Middlesex County, Massachusetts, including the building located thereon (the Building ); and
B. WHEREAS, Landlord wishes to lease to Tenant, and Tenant desires to lease from Landlord, certain premises (the Premises ) located on the third (3 rd ) floor of the Building, pursuant to the terms and conditions of this Lease, as detailed below.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Lease of Premises .
1.1. Effective on the Term Commencement Date (as defined below), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, as shown on Exhibit A attached hereto, including exclusive shafts, cable runs, mechanical spaces and rooftop areas, for use by Tenant in accordance with the Permitted Use (as defined below) and no other uses. The Property and all landscaping, parking facilities, private drives and other improvements and appurtenances related thereto, including the Building, are hereinafter collectively referred to as the Project . All portions of the Project that are for the non-exclusive use of tenants of the Building, including driveways, sidewalks, parking areas, landscaped areas, service corridors, stairways, elevators, public restrooms and public lobbies, are hereinafter referred to as Common Area .
1.2. Landlord shall have the right at any time during the Term, upon providing Tenant not less than ninety (90) days prior written notice, to provide Tenant with space elsewhere on the second (2 nd ), third (3 rd ) or fourth (4 th ) floors of the Building of substantially the same size and quality of improvements as the Premises and to remove Tenant from the Premises and place Tenant in such space. Landlord shall pay any reasonable and customary costs and expenses related thereto. Should Tenant refuse to permit Landlord to move Tenant to such new space at the end of such ninety (90) day period, Landlord shall have, in addition to all other rights and remedies allowed under this Lease, at law or in equity, the right to cancel and terminate this Lease upon providing written notice to Tenant within thirty (30) days after the end of such ninety (90) day period of Landlords election to so terminate. Upon providing such notice to Tenant, this Lease shall immediately terminate. If Landlord moves Tenant to such new space, then this Lease and each and all of its terms, covenants and conditions shall remain in full force and effect
and be deemed applicable to such new space, and such new space shall thereafter be deemed to be the Premises , and Landlord and Tenant shall enter into an express written amendment to this Lease memorializing such change. If the new space contains less square footage of Rentable Area than the original Premises, then Base Rent and Tenants Pro Rata Share shall be decreased to reflect such change. Even if the new space contains more square footage of Rentable Area than the original Premises, then Base Rent and Tenants Pro Rata Share shall not be increased to reflect such change.
2. Basic Lease Provisions . For convenience of the parties, certain basic provisions of this Lease are set forth herein. The provisions set forth herein are subject to the remaining terms and conditions of this Lease and are to be interpreted in light of such remaining terms and conditions.
2.1. This Lease shall take effect upon the Execution Date and, except as specifically otherwise provided within this Lease, each of the provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant from the date of execution and delivery hereof by all parties hereto.
2.2. In the definitions below, each current Rentable Area (as defined below) is expressed in square feet. Rentable Area and Tenants Pro Rata Share are both subject to adjustment as provided in this Lease.
Definition or Provision |
Means the Following (As of the Term
Commencement Date) |
|
Approximate Rentable Area of Premises |
6,010 square feet | |
Approximate Rentable Area of Project |
64,812 square feet | |
Tenants Pro Rata Share of Project |
9.27% |
2.3. Initial monthly and annual installments of Base Rent for the Premises ( Base Rent ) as of the Term Commencement Date, subject to adjustment under this Lease:
Dates |
Square Feet
of Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
Months 1 - 12 |
6,010 | $ | 49.00 annually | $ | 24,540.83 | $ | 294,490.00 | |||||||||
Months 13 - 24 |
6,010 | $ | 50.00 annually | $ | 25,041.67 | $ | 300,500.00 | |||||||||
Months 25 - 36 |
6,010 | $ | 51.00 annually | $ | 25,542.50 | $ | 306,510.00 | |||||||||
Months 37 - 48 |
6,010 | $ | 52.00 annually | $ | 26,043.33 | $ | 312,520.00 | |||||||||
Months 49 - 60 |
6,010 | $ | 53.00 annually | $ | 26,544.17 | $ | 318,530.00 |
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2.4. Estimated Term Commencement Date: The date that is one hundred twenty (120) days after the Execution Date
2.5. [Intentionally omitted]
2.6. Security Deposit: $98,163.32
2.7. Permitted Use: Office use in conformity with all federal, state, municipal and local laws, codes, ordinances, rules and regulations of Governmental Authorities (as defined below), committees, associations, or other regulatory committees, agencies or governing bodies having jurisdiction over the Premises, the Building, the Property, the Project, Landlord or Tenant, including both statutory and common law and hazardous waste rules and regulations ( Applicable Laws )
2.8. | Address for Rent Payment: |
BMR-Broadway LLC Attention Entity 160 P.O. Box 511415 Los Angeles, California 90051-7970 |
||
2.9. | Address for Notices to Landlord: |
BMR-Broadway LLC 17190 Bernardo Center Drive San Diego, California 92128 Attn: Vice President, Real Estate Legal |
||
2.10. | Address for Notices to Tenant: |
Prior to the Term Commencement Date:
AdHarmonics, Inc. One Kendall Square, Suite B2102 Cambridge, Massachusetts 02139
with a copy to:
Dominic A. Lloyd BakerHostetler LLP 303 East 17 th Avenue, Suite 1100 Denver, CO 80203-1264
After the Term Commencement Date:
AdHarmonics, Inc. 210 Broadway, 3 rd Floor Cambridge, Massachusetts 02139 |
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with a copy to:
Dominic A. Lloyd BakerHostetler LLP 303 East 17 th Avenue, Suite 1100 Denver, CO 80203-1264 |
||||
2.11. | Address for Invoices to Tenant: | Prior to the Term Commencement Date: | ||
AdHarmonics, Inc. One Kendall Square, Suite B2102 Cambridge, Massachusetts 02139
with a copy to:
Dominic A. Lloyd BakerHostetler LLP 303 East 17 th Avenue, Suite 1100 Denver, CO 80203-1264
After the Term Commencement Date:
AdHarmonics, Inc. 210 Broadway, 3 rd Floor Cambridge, Massachusetts 02139
with a copy to:
Dominic A. Lloyd BakerHostetler LLP 303 East 17 th Avenue, Suite 1100 Denver, CO 80203-1264 |
||||
2.12. |
The following Exhibits are attached hereto and incorporated herein by reference: |
Exhibit A | Premises | |
Exhibit B | Tenant Improvements | |
Exhibit C | Acknowledgement of Term Commencement Date and Term | |
Expiration Date | ||
Exhibit D | [Intentionally omitted] | |
Exhibit E | Form of Letter of Credit | |
Exhibit F | Rules and Regulations | |
Exhibit G | Parking and Transportation Demand Management Plan | |
Exhibit H | Tenants Personal Property | |
Exhibit I | Form of Estoppel Certificate |
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3. Term. The actual term of this Lease (as the same may be extended pursuant to Article 42 hereof, and as the same may be earlier terminated in accordance with this Lease, the Term ) shall commence on the actual Term Commencement Date (as defined in Article 4) and end on the date that is sixty (60) months after the actual Term Commencement Date (such date, the Term Expiration Date ), subject to earlier termination of this Lease as provided herein.
3.1. Termination Option . Tenant shall have the one-time option to terminate this Lease (the Termination Option ) effective as of the date that is thirty-six (36) months after the actual Term Commencement Date (the Termination Date ) by providing Landlord no less than nine (9) months prior written notice (the Termination Notice ). Simultaneously with delivery of the Termination Notice, Tenant shall deliver to Landlord the Termination Fee (as defined below) as consideration for and a condition precedent to such early termination. The Termination Fee means an amount equal to the unamortized amounts (as of the Termination Date) of (a) the Tenant Improvement Costs (as defined below) and (b) any brokers commission payable in connection with this Lease, which amounts shall be calculated by amortizing the same on a straight-line basis commencing on the actual Term Commencement Date and ending on the Term Expiration Date. The Termination Fee will be calculated and confirmed by the parties in the Acknowledgement (as defined below). If Tenant fails to timely deliver to Landlord the Termination Notice or the Termination Fee, then the Termination Option shall automatically terminate and be of no further force or effect. If Tenant timely delivers to Landlord the Termination Notice and the Termination Fee, then Tenant shall surrender the Premises to Landlord on or before the Termination Date in accordance with all of the terms and conditions of this Lease. If Tenant does not so surrender the Premises in accordance with all of the terms and conditions of this Lease on or before the Termination Date, then Tenant, pursuant to Article 27, shall become a tenant at sufferance until the actual date (the Surrender Date ) that Tenant surrenders the Premises to Landlord in accordance with the terms and conditions of this Lease. If Tenant timely delivers to Landlord the Termination Notice and the Termination Fee, then this Lease shall terminate on the later of (a) the Termination Date and (b) the Surrender Date, and shall thereafter be of no further force or effect, except for those provisions that, by their express terms, survive the expiration or earlier termination of this Lease. Notwithstanding anything in this Section to the contrary, Tenant shall not be permitted to exercise the Termination Option during such period of time that Tenant is in default under any provision of this Lease. Any attempted exercise of the Termination Option during a period of time in which Tenant is so in default shall be void and of no force or effect. The Termination Option is personal to AdHarmonics, Inc. and may not be exercised by any assignee, sublessee or transferee of this Lease, except by a Tenant Affiliate (as defined below) subsequent to an Exempt Transfer (as defined below) with such Tenant Affiliate or by an assignee of this Lease subsequent to an assignment in accordance with all of the terms and conditions of Article 29 below.
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4. Possession and Commencement Date .
4.1. Landlord shall use commercially reasonable efforts to tender possession of the Premises to Tenant on or before the Estimated Term Commencement Date, with the work (the Tenant Improvements ) required of Landlord described on Exhibit B Substantially Complete (as defined below). Tenant agrees that in the event such work is not Substantially Complete on or before the Estimated Term Commencement Date for any reason, then (a) this Lease shall not be void or voidable, (b) Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, (c) the Term Expiration Date shall be extended accordingly and (d) Tenant shall not be responsible for the payment of any Base Rent or Tenants Share of Operating Expenses (as defined below) or Tenants Pro Rata Share of Taxes (as defined below) until the actual Term Commencement Date as described in Section 4.2 occurs. The term Substantially Complete or Substantial Completion means that the Tenant Improvements are substantially complete in accordance with Exhibit B, except for minor punch list items. Notwithstanding anything in this Lease to the contrary, Landlords obligation to timely achieve Substantial Completion shall be subject to extension on a day-for-day basis as a result of Force Majeure (as defined below).
4.2. The Term Commencement Date shall be the day that Landlord tenders possession of the Premises to Tenant with the Tenant Improvements Substantially Complete. If possession is delayed by action of Tenant, then the Term Commencement Date shall be the date that the Term Commencement Date would have occurred but for such delay. Tenant shall execute and deliver to Landlord written acknowledgment of the actual Term Commencement Date and the Term Expiration Date within ten (10) days after Tenant takes occupancy of the Premises, in substantially the form attached as Exhibit C hereto (the Acknowledgement ). Failure to execute and deliver the Acknowledgment, however, shall not affect the Term Commencement Date or Landlords or Tenants liability hereunder. Failure by Tenant to obtain any governmental licensing of the Premises required for the Permitted Use by Tenant shall not serve to extend the Term Commencement Date.
4.3. Upon receipt of Tenants prior written request, Landlord shall provide Tenant with reasonable access to the Premises during the thirty (30) day period immediately preceding the Term Commencement Date for the sole purpose of installing improvements or the placement of personal property; provided, however, that prior to any such entry, Tenant shall furnish to Landlord evidence satisfactory to Landlord that insurance coverages required of Tenant under the provisions of Article 23 are in effect, and such entry shall be subject to all the terms and conditions of this Lease other than the payment of Base Rent or Tenants Share of Operating Expenses (as defined below) or Tenants Pro Rata Share of Taxes (as defined below); and provided, further, that if the Term Commencement Date is delayed due to such early access, then the Term Commencement Date shall be the date that the Term Commencement Date would have occurred but for such delay.
4.4. Landlord shall cause the Tenant Improvements to be constructed in the Premises at Landlords sole cost and expense. All costs incurred by Landlord in connection with the Tenant Improvements including, without limitation, costs of (a) construction, (b) project management by Landlord, (c) space planning, architect, engineering and other related services, (d) building permits and other taxes, fees, charges and levies by Governmental Authorities (as defined below) for permits or for inspections of the Tenant Improvements, and (e) costs and expenses for labor, material, equipment and fixtures shall be referred to in this Lease as the Tenant Improvement Costs . In the event that Tenant fails to comply with any of its obligations under this Lease and such failure causes Landlord to incur additional Tenant Improvement Costs,
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Tenant shall pay to Landlord as Additional Rent (as defined below) outside of Operating Expenses (as defined below) the amount of any such additional costs within thirty (30) days of receiving an invoice from Landlord. Landlord shall construct the Tenant Improvements in a first-class, good and workmanlike manner, using good materials and in compliance with all Applicable Laws.
4.5. Notwithstanding anything to the contrary in this Lease, if Substantial Completion has not occurred by the date that is one hundred twenty (120) days after the Execution Date (the Abatement Date ), then Tenant shall be entitled to receive one (1) day of Base Rent abatement for each day thereafter that Substantial Completion has not occurred; provided , however, that the Abatement Date shall be subject to extension on a day-for-day basis as a result of (a) Force Majeure and (b) any delay caused by any action or inaction of Tenant.
5. Condition of Premises . Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises, the Building or the Project, or with respect to the suitability of the Premises, the Building or the Project for the conduct of Tenants business. Tenant acknowledges that (a) it is fully familiar with the condition of the Premises and agrees to take the same in its condition as is as of the Term Commencement Date and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Premises for Tenants occupancy or to pay for or construct any improvements to the Premises, except with respect to the Tenant Improvements. Tenants taking of possession of the Premises shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Premises, the Building and the Project were at such time in good, sanitary and satisfactory condition and repair. Notwithstanding anything to the contrary in this Lease, Landlord hereby represents and warrants that, as of the Term Commencement Date, the heating, ventilating and air conditioning systems serving the Premises ( HVAC ), and the electrical, life safety and plumbing systems serving the Premises are in good working condition. The term HVAC as used in this Lease shall not include any Supplemental HVAC Unit (as defined below).
6. Rentable Area .
6.1. The term Rentable Area shall reflect such areas as reasonably calculated by Landlords architect, as the same may be reasonably adjusted from time to time by Landlord in consultation with Landlords architect to reflect changes to the Premises, the Building or the Project, as applicable.
6.2. The Rentable Area of the Building is generally determined by making separate calculations of Rentable Area applicable to each floor within the Building and totaling the Rentable Area of all floors within the Building. The Rentable Area of a floor is computed by measuring to the outside finished surface of the permanent outer Building walls. The full area calculated as previously set forth is included as Rentable Area, without deduction for columns and projections or vertical penetrations, including stairs, elevator shafts, flues, pipe shafts, vertical ducts and the like, as well as such items enclosing walls.
6.3. The term Rentable Area , when applied to the Premises, is that area equal to the usable area of the Premises, plus an equitable allocation of Rentable Area within the Building that is not then utilized or expected to be utilized as usable area, including that portion of the Building devoted to corridors, equipment rooms, restrooms, elevator lobby, atrium and mailroom.
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7. Rent .
7.1. Tenant shall pay to Landlord as Base Rent for the Premises, commencing on the Term Commencement Date, the sums set forth in Section 2.3 , Base Rent shall be paid in equal monthly installments as set forth in Section 2.3 , each in advance on the first day of each and every calendar month during the Term.
7.2. In addition to Base Rent, Tenant shall pay to Landlord as additional rent ( Additional Rent ) at times hereinafter specified in this Lease (a) any increase in Taxes (as defined below) payable with respect to the Project, based upon Tenants Pro Rata Share, in excess of Taxes for the calendar year ending December 31, 2013 (the Base Year ), (b) any increase in Operating Expenses, based upon Tenants Pro Rata Share, in excess of Operating Expenses for the Base Year and (c) any other amounts that Tenant assumes or agrees to pay under the provisions of this Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenants part to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.
7.3. Base Rent and Additional Rent shall together be denominated Rent . Rent shall be paid to Landlord, without abatement, deduction or offset, in lawful money of the United States of America at the office of Landlord as set forth in Section 2.8 or to such other person or at such other place as Landlord may from time designate in writing. In the event the Term commences or ends on a day other than the first day of a calendar month, then the Rent for such fraction of a month shall be prorated for such period on the basis of the number of days in the month and shall be paid at the then-current rate for such fractional month.
7.4. Tenants obligation to pay Rent shall not be discharged or otherwise affected by (a) any Applicable Laws now or hereafter applicable to the Premises, (b) any other restriction on Tenants use, or (c) except as expressly provided herein, any casualty or taking. Tenants obligation to pay Rent with respect to any period or obligations arising, existing or pertaining to the period prior to the date of the expiration or earlier termination of the Term or this Lease shall survive any such expiration or earlier termination; provided , however, that nothing in this sentence shall in any way affect Tenants obligations with respect to any other period.
8. [Intentionally omitted]
9. Operating Expenses and Taxes .
9.1. As used herein, the term Operating Expenses shall include all costs of any kind (excluding Taxes (as defined below)) paid or incurred by Landlord in connection with the operation or maintenance of the Building and the Project, which shall include Project office rent at fair market rental for a commercially reasonable amount of space for Project management personnel, to the extent an office used for Project operations is maintained at the Project, plus
8
customary expenses for such office, and costs of repairs and replacements to improvements within the Project as appropriate to maintain the Project as required hereunder; costs of utilities furnished to the Common Areas (including surcharges); sewer fees; cable television; trash collection; cleaning, including windows; heating; ventilation; air-conditioning; maintenance of landscaping and grounds; maintenance of drives and parking areas; maintenance of the roof; security services and devices; building supplies; maintenance or replacement of equipment utilized for operation and maintenance of the Project; license, permit and inspection fees; sales, use and excise taxes on goods and services purchased by Landlord in connection with the operation, maintenance or repair of the Building or Project systems and equipment; telephone, postage, stationery supplies and other expenses incurred in connection with the operation, maintenance or repair of the Project; accounting, legal and other professional fees and expenses incurred in connection with the Project; costs of furniture, draperies, carpeting, landscaping, snow removal and other customary and ordinary items of personal property provided by Landlord for use in Common Areas or in the Project office; capital expenditures; costs of complying with Applicable Laws (except to the extent such costs are incurred to remedy non-compliance as of the Execution Date with Applicable Laws); costs to keep the Project in compliance with, or fees otherwise required under, any CC&Rs (as defined below); insurance premiums, including premiums for commercial general liability, property casualty, earthquake, terrorism and environmental coverages; portions of insured losses paid by Landlord as part of the deductible portion of a loss pursuant to the terms of insurance policies; service contracts; costs of services of independent contractors retained to do work of a nature referenced above; the Property Management Fee (as defined below); and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives and parking areas, including janitors, floor waxers, window washers, watchmen, gardeners, sweepers, plow trucks and handymen.
Notwithstanding the foregoing, Operating Expenses shall not include any leasing commissions; expenses that relate to preparation of rental space for a tenant; expenses of initial development and construction, including grading, paving, landscaping and decorating (as distinguished from maintenance, repair and replacement of the foregoing); legal expenses relating to other tenants; costs of repairs to the extent reimbursed by payment of insurance proceeds received by Landlord; interest upon loans to Landlord or secured by a mortgage or deed of trust covering the Project or a portion thereof (provided that interest upon a government assessment or improvement bond payable in installments shall constitute part of Taxes under Subsection 9.2) ; salaries of executive officers of Landlord; depreciation claimed by Landlord for tax purposes (provided that this exclusion of depreciation is not intended to delete from Operating Expenses actual costs of repairs and replacements and reasonable reserves in regard thereto that are provided for in the first paragraph of this Subsection 9.1) ; and Personal Obligation Taxes (as defined below). To the extent that Tenant uses more than Tenants Pro Rata Share of any item of Operating Expenses, Tenant shall pay Landlord (as Additional Rent outside of Operating Expenses within thirty (30) days of receiving an invoice from Landlord therefor) for such excess in addition to Tenants obligation to pay Tenants Pro Rata Share of any increase in Operating Expenses over Operating Expenses for the Base Year (such excess, together with Tenants Pro Rata Share of any increase in Operating Expenses over Operating Expenses for the Base Year, Tenants Share ).
9
9.2. As used herein, the term Taxes shall include government impositions, including property tax costs consisting of real and personal property taxes and assessments (including amounts due under any improvement bond upon the Building or the Project (including the parcel or parcels of real property upon which the Building and areas serving the Building and the Project are located)) or assessments in lieu thereof imposed by any federal, state, regional, local or municipal governmental authority, agency or subdivision (each, a Governmental Authority ); taxes on or measured by gross rentals received from the rental of space in the Project; taxes based on the square footage of the Premises, the Building or the Project, as well as any parking charges, utilities surcharges or any other costs levied, assessed or imposed by, or at the direction of, or resulting from Applicable Laws or interpretations thereof, promulgated by any Governmental Authority in connection with the use or occupancy of the Project or the parking facilities serving the Project; any fee for a business license to operate an office building; and any expenses, including the reasonable cost of attorneys or experts, reasonably incurred by Landlord in seeking reduction by the taxing authority of the applicable taxes, less tax refunds obtained as a result of an application for review thereof. Taxes shall not include any net income, franchise, capital stock, estate or inheritance taxes, or taxes that are the personal obligation of Tenant or of another tenant of the Project (collectively, Personal Obligation Taxes ). The definition of Taxes above is based upon the present system of real estate taxation in the Commonwealth of Massachusetts; if taxes upon rentals or any other basis shall be substituted, in whole or in part, for the present ad valorem real estate taxes, the term Taxes shall be deemed changed to the extent to which there is such a substitution for the present ad valorem real estate taxes.
9.3. Tenant shall pay to Landlord on the first day of each calendar month of the Term, as Additional Rent, (a) Landlords estimate of Tenants Pro Rata Share of any increase in Operating Expenses over the Base Year for such month, and (b) Landlords estimate of Tenants Pro Rata Share of any increase in Taxes over the Base Year for such month.
(v) The Property Management Fee shall equal three percent (3%) of Base Rent due from Tenant and shall be included in Operating Expenses (including during the Base Year).
(w) Within ninety (90) days after the conclusion of each calendar year (or such longer period as may be reasonably required by Landlord), Landlord shall furnish to Tenant a statement showing in reasonable detail the actual Operating Expenses and Tenants Pro Rata Share of any increase of Operating Expenses over the Base Year for the previous calendar year. Landlord shall maintain books and records reflecting Operating Expenses and Taxes with respect to the Building in accordance with good accounting practices and generally accepted accounting principles. Any additional sum due from Tenant to Landlord shall be due and payable within thirty (30) days of Tenants receipt of such statement. If the amounts paid by Tenant pursuant to this Section exceed Tenants Pro Rata Share of any increase of Operating Expenses over the Base Year for the previous calendar year, then Landlord shall credit the difference against the Rent next due and owing from Tenant; provided that, if the Lease term has expired, Landlord shall accompany such statement with payment for the amount of such difference.
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(x) Landlords estimate of Tenants Pro Rata Share of any increase in Taxes shall be completed in good faith by Landlord at the end of each year and thereafter be payable to Landlord in equal estimated monthly installments as provided in Section 9.3 , subject to readjustment when the actual amount of Taxes is determined. After readjustment, any shortage in the amount paid by Tenant shall be due and payable by Tenant within thirty (30) days after demand by Landlord, and any overpayment by Tenant shall be credited by Landlord against the Rent next due and owing from Tenant; provided that, if the Term has expired, Landlord shall accompany any such statement of readjustment with payment for the amount of such overpayment.
(y) Any amount due under this Section for any period that is less than a full month shall be prorated for such fractional month on the basis of the number of days in the month.
(z) Notwithstanding anything to the contrary in this Lease, in the event that (i) actual Operating Expenses for any calendar year, based on Tenants Pro Rata Share, are less than Operating Expenses for the Base Year, or (ii) actual Taxes for any calendar year, based on Tenants Pro Rata Share, are less than Taxes for the Base Year, Tenant shall not be entitled to receive any amounts from Landlord on account thereof or any credit toward Tenants obligations with respect to Rent under this Lease.
9.4 Landlord may, from time to time, modify Landlords calculation and allocation procedures for Operating Expenses, so long as such modifications produce Dollar results substantially consistent with Landlords then-current practice at the Project. Landlord or an affiliate(s) of Landlord currently own other property(ies) adjacent to the Project or its neighboring properties (collectively, Neighboring Properties ), In connection with Landlord performing services for the Project pursuant to this Lease, similar services may be performed by the same vendor(s) for Neighboring Properties. In such a case, Landlord shall reasonably allocate to each Building and the Project the costs for such services based upon the ratio that the square footage of the Building or the Project (as applicable) bears to the total square footage of all of the Neighboring Properties or buildings within the Neighboring Properties for which the services are performed, unless the scope of the services performed for any building or property (including the Building and the Project) is disproportionately more or less than for others, in which case Landlord shall equitably allocate the costs based on the scope of the services being performed for each building or property (including the Building and the Project).
9.5 Tenant shall not be responsible for Operating Expenses or Taxes attributable to the time period prior to the Term Commencement Date. Tenants responsibilities for Tenants Share with respect to Operating Expenses and Tenants Pro Rata Share with respect to Taxes shall continue to the latest of (a) the date of termination of the Lease, (b) the date Tenant has fully vacated the Premises and (c) if termination of the Lease is due to a default by Tenant, the date of rental commencement of a replacement tenant.
9.6 Operating Expenses and Taxes for the calendar year in which Tenants obligation to share therein commences and for the calendar year in which such obligation ceases shall be prorated on a basis reasonably determined by Landlord. Expenses such as taxes, assessments and insurance premiums that are incurred for an extended time period shall be prorated based upon the time periods to which they apply so that the amounts attributed to the Premises relate in a reasonable manner to the time period wherein Tenant has an obligation to share in Operating Expenses and Taxes.
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9.7 Within ten (10) business days after the end of each calendar month, Tenant shall submit to Landlord an invoice, or, in the event an invoice is not available, an itemized list, of all costs and expenses that (a) Tenant has incurred (either internally or by employing third parties) during the prior month and (b) for which Tenant reasonably believes it is entitled to reimbursements from Landlord pursuant to the terms of this Lease or that Tenant reasonably believes is the responsibility of Landlord pursuant to this Lease or Exhibit B .
9.8 In the event that the Project is less than ninety-five percent (95%) occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate Operating Expenses that vary depending on the occupancy of the Project to equal Landlords reasonable estimate of what such Operating Expenses would have been had the Project been ninety-five percent (95%) occupied during such calendar year; provided , however, that Landlord shall not recover more than one hundred percent (100%) of Operating Expenses.
10. Taxes on Tenants Property .
10.1. Tenant shall pay prior to delinquency any and all (a) taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises or (b) taxes on this transaction or any document to which Tenant is a party creating or transferring an interest in the Premises.
10.2. If any such taxes on Tenants personal property or trade fixtures are levied against Landlord or Landlords property or, if the assessed valuation of the Building, the Property or the Project is increased by inclusion therein of a value attributable to Tenants personal property or trade fixtures, and if Landlord, after written notice to Tenant, pays the taxes based upon any such increase in the assessed value of the Building, the Property or the Project, then Tenant shall, upon demand, repay to Landlord the taxes so paid by Landlord.
10.3. If any improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which improvements conforming to Landlords building standards (the Building Standard ) in other spaces in the Building are assessed, then the real property taxes and assessments levied against Landlord or the Building, the Property or the Project by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 10.2 . Any such excess assessed valuation due to improvements in or alterations to space in the Project leased by other tenants at the Project shall not be included in Operating Expenses. If the records of the applicable governmental assessors office are available and sufficiently detailed to serve as a basis for determining whether such Tenant improvements or alterations are assessed at a higher valuation than the Building Standard, then such records shall be binding on both Landlord and Tenant.
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11. Security Deposit .
11.1. Tenant shall deposit with Landlord on or before the Execution Date the sum set forth in Section 2.6 (the Security Deposit ), which sum shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the period commencing on the Execution Date and ending upon the expiration or termination of Tenants obligations under this Lease. If Tenant Defaults (as defined below) with respect to any provision of this Lease, including any provision relating to the payment of Rent, then Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenants default. If any portion of the Security Deposit is so used or applied, then Tenant shall, within ten (10) days following demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenants failure to do so shall be a material breach of this Lease. The provisions of this Article shall survive the expiration or earlier termination of this Lease.
11.2. In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings.
11.3. Landlord may deliver to any purchaser of Landlords interest in the Premises the funds deposited hereunder by Tenant, and thereupon Landlord shall be discharged from any further liability with respect to such deposit. This provision shall also apply to any subsequent transfers.
11.4. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, then the Security Deposit, or any balance thereof, shall be returned to Tenant (or, at Landlords option, to the last assignee of Tenants interest hereunder) within thirty (30) days after the expiration or earlier termination of this Lease.
11.5. [Intentionally omitted]
11.6. If the Security Deposit shall be in cash, Landlord shall hold the Security Deposit in an account at a banking organization selected by Landlord; provided , however, that Landlord shall not be required to maintain a separate account for the Security Deposit, but may intermingle it with other funds of Landlord. Landlord shall be entitled to all interest and/or dividends, if any, accruing on the Security Deposit. Landlord shall not be required to credit Tenant with any interest for any period during which Landlord does not receive interest on the Security Deposit.
11.7. The Security Deposit may be in the form of cash, a letter of credit or any other security instrument acceptable to Landlord in its sole discretion. Tenant may at any time, except when Tenant is in Default (as defined below), deliver a letter of credit (the L/C Security ) as the entire Security Deposit, as follows:
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(a) If Tenant elects to deliver L/C Security, then Tenant shall provide Landlord, and maintain in full force and effect throughout the Term and until the date that is six (6) months after the then-current Term Expiration Date, a letter of credit in the form of Exhibit E issued by an issuer reasonably satisfactory to Landlord, in the amount of the Security Deposit, with an initial term of at least one year. Landlord may require the L/C Security to be re-issued by a different issuer at any time during the Term if Landlord reasonably believes that the issuing bank of the L/C Security is or may soon become insolvent; provided, however, Landlord shall return the existing L/C Security to the existing issuer immediately upon receipt of the substitute L/C Security. If any issuer of the L/C Security shall become insolvent or placed into FDIC receivership, then Tenant shall immediately deliver to Landlord (without the requirement of notice from Landlord) substitute L/C Security issued by an issuer reasonably satisfactory to Landlord, and otherwise conforming to the requirements set forth in this Article. As used herein with respect to the issuer of the L/C Security, insolvent shall mean the determination of insolvency as made by such issuers primary bank regulator ( i.e ., the state bank supervisor for state chartered banks; the OCC or OTS, respectively, for federally chartered banks or thrifts; or the Federal Reserve for its member banks). If, at the Term Expiration Date, any Rent remains uncalculated or unpaid, then (i) Landlord shall with reasonable diligence complete any necessary calculations, (ii) Tenant shall extend the expiry date of such L/C Security from time to time as Landlord reasonably requires and (iii) in such extended period, Landlord shall not unreasonably refuse to consent to an appropriate reduction of the L/C Security. Tenant shall reimburse Landlords actual, reasonable legal costs (as estimated by Landlords counsel) in handling Landlords acceptance of L/C Security or its replacement or extension.
(b) If Tenant delivers to Landlord satisfactory L/C Security in place of the entire Security Deposit, Landlord shall remit to Tenant any cash Security Deposit Landlord previously held.
(c) Landlord may draw upon the L/C Security, and hold and apply the proceeds in the same manner and for the same purposes as the Security Deposit, if (i) an uncured Default (as defined below) exists, (ii) as of the date forty-five (45) days before any L/C Security expires (even if such scheduled expiry date is after the Term Expiration Date) Tenant has not delivered to Landlord an amendment or replacement for such L/C Security, reasonably satisfactory to Landlord, extending the expiry date to the earlier of (1) six (6) months after the then-current Term Expiration Date or (2) the date one year after the then-current expiry date of the L/C Security, (iii) the L/C Security provides for automatic renewals, Landlord asks the issuer to confirm the current L/C Security expiry date, and the issuer fails to do so within ten (10) business days, (iv) Tenant fails to pay (when and as Landlord reasonably requires) any bank charges for Landlords transfer of the L/C Security or (v) the issuer of the L/C Security ceases, or announces that it will cease, to maintain an office in the city where Landlord may present drafts under the L/C Security (and fails to permit drawing upon the L/C Security by overnight courier or facsimile). This Section does not limit any other provisions of this Lease allowing Landlord to draw the L/C Security under specified circumstances.
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(d) Tenant shall not seek to enjoin, prevent, or otherwise interfere with Landlords draw under L/C Security, even if it violates this Lease. Tenant acknowledges that the only effect of a wrongful draw would be to substitute a cash Security Deposit for L/C Security, causing Tenant no legally recognizable damage. Landlord shall hold the proceeds of any draw in the same manner and for the same purposes as a cash Security Deposit. In the event of a wrongful draw, the parties shall cooperate to allow Tenant to post replacement L/C Security simultaneously with the return to Tenant of the wrongfully drawn sums, and Landlord shall upon request confirm in writing to the issuer of the L/C Security that Landlords draw was erroneous.
(e) If Landlord transfers its interest in the Premises, then Tenant shall at Tenants expense, within five (5) business days after receiving a request from Landlord, deliver (and, if the issuer requires, Landlord shall consent to) an amendment to the L/C Security naming Landlords grantee as substitute beneficiary. If the required Security Deposit changes while L/C Security is in force, then Tenant shall deliver (and, if the issuer requires, Landlord shall consent to) a corresponding amendment to the L/C Security.
12. Use .
12.1. Tenant shall use the Premises for the Permitted Use, and shall not use the Premises, or permit or suffer the Premises to be used, for any other purpose without Landlords prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
12.2. Tenant shall not use or occupy the Premises in violation of Applicable Laws; zoning ordinances; or the certificate of occupancy issued for the Building or the Project, and shall, upon five (5) days written notice from Landlord, discontinue any use of the Premises that is declared or claimed by any Governmental Authority having jurisdiction to be a violation of any of the above, or that in Landlords reasonable opinion violates any of the above. Tenant shall comply with any direction of any Governmental Authority having jurisdiction that shall, by reason of the nature of Tenants use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof.
12.3. Tenant shall not do or permit to be done anything that will invalidate or increase the cost of any fire, environmental, extended coverage or any other insurance policy covering the Building or the Project, and shall comply with all rules, orders, regulations and requirements of the insurers of the Building and the Project, and Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenants failure to comply with the provisions of this Article. Landlord acknowledges that Tenants use of the Premises for the Permitted Use in accordance with all of the terms and conditions of this Lease shall not invalidate or increase the cost of any fire, environmental, extended coverage or any other insurance policy covering the Building or the Project.
12.4. Tenant shall keep all doors opening onto public corridors closed, except when in use for ingress and egress.
12.5. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made to existing locks or the mechanisms thereof without Landlords prior written consent. Tenant shall, upon termination of this Lease, return to Landlord all keys to offices and restrooms either furnished to or otherwise procured by Tenant. In the event any key so furnished to Tenant is lost, Tenant shall pay to Landlord the actual cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such change.
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12.6. No awnings or other projections shall be attached to any outside wall of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlords standard window coverings without Landlords prior written consent (in Landlords so e and absolute discretion). Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without Landlords prior written consent, nor shall any bottles, parcels or other articles be placed on the windowsills. No equipment, furniture or other items of personal property shall be placed on any exterior balcony without Landlords prior written consent.
12.7. No sign, advertisement or notice ( Signage ) shall be exhibited, painted or affixed by Tenant on any part of the Premises or the Building without Landlords prior written consent. Signage shall conform to Landlords design criteria. For any Signage, Tenant shall, at Tenants own cost and expense, (a) acquire all permits for such Signage in compliance with Applicable Laws and (b) design, fabricate, install and maintain such Signage in a first-class condition. Tenant shall be responsible for reimbursing Landlord for costs incurred by Landlord in removing any of Tenants Signage upon the expiration or earlier termination of the Lease. Interior signs on entry doors to the Premises and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at Landlords sole cost and expense, and shall be of a size, color and type and be located in a place acceptable to Landlord. The directory tablet shall be provided exclusively for the display of the name and location of tenants only. Tenant shall not place anything on the exterior of the corridor walls or corridor doors other than Landlords standard lettering. At Landlords option, Landlord may install any Tenant Signage, and Tenant shall pay all actual costs associated with such installation within thirty (30) days after demand therefor.
12.8. Tenant may only place equipment within the Premises with floor loading consistent with the Buildings structural design unless Tenant obtains Landlords prior written approval. Tenant may place such equipment only in a location designed to carry the weight of such equipment.
12.9. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations therefrom from extending into the Common Areas or other offices in the Project.
12.10. Tenant shall not (a) do or permit anything to be done in or about the Premises that shall in any way unreasonably obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or annoy them, (b) use or allow the Premises to be used for immoral, unlawful or objectionable purposes, (c) cause, maintain or permit any nuisance or waste in, on or about the Project or (d) take any other action that would in Landlords reasonable determination in any manner adversely affect other tenants quiet use and enjoyment of their space or adversely impact their ability to conduct business in a professional and suitable work environment.
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12.11. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for all liabilities, costs and expenses arising out of or in connection with the compliance of the Premises with the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq., and any state and local accessibility laws, codes, ordinances and rules (collectively, and together with regulations promulgated pursuant thereto, the ADA ), and Tenant shall indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord) and hold Landlord and its affiliates, employees, agents and contractors; and any lender, mortgagee or beneficiary (each, a Lender and, collectively with Landlord and its affiliates, employees, agents and contractors, the Landlord Indemnitees ) harmless from and against any demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages, suits or judgments, and all reasonable expenses (including reasonable attorneys fees, charges and disbursements, regardless of whether the applicable demand, claim, action, cause of action or suit is voluntarily withdrawn or dismissed) incurred in investigating or resisting the same (collectively, Claims ) arising out of any such failure of the Premises to comply with the ADA. This Section (as well as any other provisions of this Lease dealing with indemnification of the Landlord Indemnitees by Tenant shall be deemed to be modified in each case by the insertion in the appropriate place of the following: except as otherwise provided in Mass. G.L. Ter. Ed., C. 186, Section 15. The provisions of this Section shall survive the expiration or earlier termination of this Lease. Landlord hereby represents and warrants that, as of the Term Commencement Date, the Common Areas are in compliance with the ADA.
13. Rules and Regulations, CC&Rs, Parking Facilities and Common Areas .
13.1. Tenant shall have the non-exclusive right, in common with others, to use the Common Areas in conjunction with Tenants use of the Premises for the Permitted Use, and such use of the Common Areas and Tenants use of the Premises shall be subject to the rules and regulations adopted by Landlord and attached hereto as Exhibit F , together with such other reasonable and nondiscriminatory rules and regulations as are hereafter promulgated by Landlord in its sole and absolute discretion (the Rules and Regulations ). Tenant shall faithfully observe and comply with the Rules and Regulations. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or any agent, employee or invitee thereof of any of the Rules and Regulations.
13.2. This Lease is subject to any recorded covenants, conditions or restrictions on the Project or Property (the CC&R s), as the same may be amended, amended and restated, supplemented or otherwise modified from time to time. Tenant shall comply with the CC&Rs.
13.3. This Lease is also subject to the Parking and Transportation Demand Management Plan for the Property that was approved on March 29, 1999 and that is attached hereto as Exhibit G with all applicable transfers thereof (the PTDM ). Tenant acknowledges that Tenant, at its sole cost and expense, shall comply with the requirements in the PTDM, including (without limitation) the requirements set forth in the Alternative Work Programs, Public Transportation Incentives, Ridesharing Programs and Provisions of Bicycle and Pedestrian Amenities sections thereof. Tenant, at its sole cost and expense, shall also comply with the reporting requirements set forth in the PTDM, insofar as the same apply to Tenant or are relevant to Tenants role in or contribution to the PTDM fulfillment requirements for the Building (but not otherwise) at Landlords written request. Any costs incurred by Landlord in connection with the PTDM shall be an Operating Expense.
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13.4. Tenant shall have a non-exclusive, irrevocable license to use Tenants Pro Rata Share of parking spaces in the parking facilities serving the Building (which, as of the Execution Date, is one (1) space per one thousand (1,000) square feet of Rentable Area of the Premises) in common on an unreserved basis with other tenants of the Building during the Term at a cost of Two Hundred Ten Dollars ($210.00) per parking space per month, which Tenant shall pay simultaneously with payments of Base Rent as Additional Rent outside of Operating Expenses. The monthly charge is subject to increase from time to time to equal the fair market parking charges for comparable commercial parking facilities for comparable quality buildings in the Kendall Square area of the City of Cambridge, Massachusetts, as reasonably determined by Landlord. Notwithstanding anything set forth herein to the contrary, Tenant may, upon sixty (60) days prior written notice to Landlord, choose to release its license to use any portion of Tenants Pro Rata Share of parking facilities serving the Building (the Released Spaces ). In the event of any such release, Tenant shall not be obligated to pay any future monthly parking charge for such Released Spaces, and Landlord, in its sole discretion, may grant use of the Released Spaces to a third party. Tenant, upon sixty (60) days prior written notice to Landlord, may request that Landlord reinstate Tenants license to use the Released Spaces. In the event that all or any portion of the Released Spaces are available, Landlord shall reinstate Tenants license to use the same and Tenant shall be obligated to pay the corresponding parking fee as set forth in this Section.
13.5. Tenant agrees not to unreasonably overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of the parking facilities. Landlord reserves the right to determine that parking facilities are becoming overcrowded and to limit Tenants use thereof. Upon such determination, Landlord may reasonably allocate parking spaces among Tenant and other tenants of the Building or the Project. Nothing in this Section, however, is intended to create an affirmative duty on Landlords part to monitor parking.
13.6. Landlord reserves the right to modify the Common Areas provided the same does not materially detrimentally affect the size or use of the Premises, including the right to add or remove exterior and interior landscaping and to subdivide real property. Tenant acknowledges that Landlord specifically reserves the right to allow the exclusive use of corridors and restroom facilities located on specific floors to one or more tenants occupying such floors; provided , however, that Tenant shall not be deprived of the use of the corridors reasonably required to serve the Premises or of restroom facilities serving the floor upon which the Premises are located.
14. Project Control by Landlord .
14.1. Landlord reserves full control over the Building and the Project to the extent not inconsistent with Tenants enjoyment of the Premises as provided by this Lease. This reservation includes Landlords right to subdivide the Project; convert the Building to condominium units; change the size of the Project by selling all or a portion of the Project or adding real property and any improvements thereon to the Project; grant easements and licenses to third parties; maintain or establish ownership of the Building separate from fee title to the Property; make additions to or reconstruct portions of the Building and the Project; install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building
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or the Project pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises, the Building or elsewhere at the Project; and alter or relocate any other Common Area or facility, including private drives, lobbies and entrances; provided , however, that such rights shall be exercised in a way that does not materially adversely affect Tenants beneficial use and occupancy of the Premises, including the Permitted Use and Tenants access to the Premises.
14.2. Possession of areas of the Premises necessary for utilities, services, safety and operation of the Building is reserved to Landlord.
14.3. Tenant shall, at Landlords request, promptly execute such further documents as may be reasonably appropriate to assist Landlord in the performance of its obligations hereunder; provided that Tenant need not execute any document that creates additional liability for Tenant or that deprives Tenant of the quiet enjoyment and use of the Premises as provided for in this Lease.
14.4. Upon reasonable advance notice to Tenant, Landlord may, at any and all reasonable times during non-business hours (or during business hours, if (a) with respect to Subsections 14.4(u) through 14.4(y) , Tenant so requests, and (b) with respect to Subsection 14.4(z) , if Landlord so requests, but provided the same does not materially adversely affect Tenants day-to-day business operations), and upon twenty-four (24) hours prior notice (provided that no time restrictions shall apply or advance notice be required if an emergency necessitates immediate entry), enter the Premises to (u) inspect the same and to determine whether Tenant is in compliance with its obligations hereunder, (v) supply any service Landlord is required to provide hereunder, (w) alter, improve or repair any portion of the Building other than the Premises for which access to the Premises is reasonably necessary, (x) post notices of nonresponsibility, (y) access the telephone equipment, electrical substation and fire risers and (z) show the Premises to prospective purchasers or tenants during the final year of the Term. In connection with any such alteration, improvement or repair as described in Subsection 14.4(w) , Landlord may erect in the Premises or elsewhere in the Project scaffolding and other structures reasonably required for the alteration, improvement or repair work to be performed. In no event shall Tenants Rent abate as a result of Landlords activities pursuant to this Section; provided, however, that all such activities shall be conducted in such a manner so as to cause as little interference to Tenant as is reasonably possible. Landlord shall at all times retain a key with which to unlock all of the doors in the Premises. If an emergency necessitates immediate access to the Premises, Landlord may use whatever force is necessary to enter the Premises, and any such entry to the Premises shall not constitute a forcible or unlawful entry to the Premises, a detainer of the Premises, or an eviction of Tenant from the Premises or any portion thereof.
15. Quiet Enjoyment . Landlord covenants that Tenant, upon paying the Rent and performing its obligations contained in this Lease, may peacefully and quietly have, hold and enjoy the Premises, free from any claim by Landlord or persons claiming under Landlord, but subject to all of the terms and provisions hereof, provisions of Applicable Laws and rights of record to which this Lease is or may become subordinate. This covenant is in lieu of any other quiet enjoyment covenant, either express or implied.
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16. Utilities and Services .
16.1. Landlord shall pay the appropriate service provider for all water (from a local municipal or similar source) and gas supplied to the Premises. Tenant shall pay Tenants Pro Rata Share of all charges of such utilities as part of Operating Expenses; provided , however, that if Tenants consumption of any such utility exceeds that of a typical office user (as reasonably determined by Landlord), then Tenant shall pay to Landlord (as Additional Rent outside of Operating Expenses within thirty (30) days of receiving an invoice from Landlord therefor) the total cost of such excess consumption (including, without limitation, the cost of purchasing, installing and monitoring any metering equipment Landlord deems reasonably necessary to monitor such excess consumption). Tenant shall pay for all electricity supplied to the Premises (which Premises are currently separately sub-metered), together with any fees, surcharges and taxes thereon. In the event that electricity is not separately metered to Tenant for any period of time during the Term, Tenant shall pay to Landlord (as Additional Rent outside of Operating Expenses within thirty (30) days of receiving an invoice from Landlord therefor) Tenants Pro Rata Share of electricity jointly metered with other premises; provided , however, that if Tenants consumption of electricity exceeds Tenants Pro Rata Share (as reasonably determined by Landlord), then Tenant shall pay to Landlord the total cost of such excess consumption (including, without limitation, the cost of purchasing, installing and monitoring any metering equipment Landlord deems reasonably necessary to monitor such excess consumption). In the event that the Project is less than ninety-five percent (95%) occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate utility usage that varies depending on the occupancy of the Project to equal Landlords reasonable estimate of what such utility usage would have been had the Project been ninety-five percent (95%) occupied during such calendar year; provided , however, that Landlord shall not recover more than one hundred percent (100%) of the cost of such utilities. Tenant shall not be liable for the cost of utilities supplied to the Premises attributable to the time period prior to the Term Commencement Date; provided , however, that, if Landlord shall permit Tenant possession of the Premises prior to the Term Commencement Date and Tenant uses the Premises for any purpose other than placement of personal property as set forth in Section 4.3 , then Tenant shall be responsible for the cost of utilities supplied to the Premises from such earlier date of possession.
16.2. Landlord shall not be liable for, nor shall any eviction of Tenant result from, the failure to furnish any utility or service, whether or not such failure is caused by accident; breakage; repair; strike, lockout or other labor disturbance or labor dispute of any character; act of terrorism; shortage of materials, which shortage is not unique to Landlord or Tenant, as the case may be; governmental regulation, moratorium or other governmental action, inaction or delay; or other causes beyond Landlords control (collectively, Force Majeure ) or, to the extent permitted by Applicable Laws, Landlords negligence. In the event o such failure, Tenant shall not be entitled to termination of this Lease or any abatement or reduction of Rent, nor shall Tenant be relieved from the operation of any covenant or agreement of this Lease. Notwithstanding anything to the contrary in this Lease, if, for more than ten (10) consecutive business days following written notice to Landlord and as a direct result of Landlords gross negligence or willful misconduct, the provision of HVAC or other utilities to all or a material portion of the Premises that Landlord must provide pursuant to this Lease is interrupted, then Tenants Base Rent and Operating Expenses (or, to the extent that less than all of the Premises
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are affected, a proportionate amount (based on the Rentable Area of the Premises that is rendered unusable) of Base Rent and Operating Expenses) shall thereafter be abated until the Premises are again usable by Tenant for the Permitted Use; provided , however, that, if Landlord is diligently pursuing the restoration of such HVAC and other utilities and Landlord provides substitute HVAC and other utilities reasonably suitable for Tenants continued use and occupancy of the Premises for the Permitted Use (e.g., supplying portable air conditioning equipment), then neither Base Rent nor Operating Expenses shall be abated. In the event of any interruption of HVAC or other utilities that Landlord must provide pursuant to this Lease, regardless of the cause, Landlord shall diligently pursue the restoration of such HVAC and other utilities. Notwithstanding anything in this Lease to the contrary, but subject to Article 24 (which shall govern in the event of a casualty), the provisions of this Section shall be Tenants sole recourse and remedy in the event of an interruption of HVAC or other utilities to the Premises.
16.3. Tenant shall pay for, prior to delinquency of payment therefor, any utilities and services that may be furnished to the Premises during or, if Tenant occupies the Premises after the expiration or earlier termination of the Term, after the Term, beyond those utilities provided by Landlord, including telephone, internet service, cable television and other telecommunications, together with any fees, surcharges and taxes thereon. Upon Landlords demand, utilities and services provided to the Premises that are separately metered shall be paid by Tenant directly to the supplier of such utilities or services.
16.4. Tenant shall not, without Landlords prior written consent, use any device in the Premises (including data processing machines) that will in any way (a) increase the amount of ventilation, air exchange, gas, steam, electricity or water required or consumed in the Premises based upon Tenants Pro Rata Share beyond the existing capacity of the Building or the Project usually furnished or supplied for the Permitted Use or (b) exceed Tenants Pro Rata Share of the capacity to provide such utilities or services.
16.5. If Tenant shall require utilities or services in excess of those usually furnished or supplied for tenants in similar spaces in the Building or the Project by reason of Tenants equipment or extended hours of business operations, then Tenant shall first procure Landlords consent for the use thereof, which consent Landlord may condition upon the availability of such excess utilities or services, and Tenant shall pay as Additional Rent an amount equal to the actual cost of providing such excess utilities and services with no surcharge or administrative fee added by the Landlord.
16.6. Landlord shall provide water in Common Areas for lavatory and landscaping purposes only, which water shall be from the local municipal or similar source; provided , however, that if Landlord determines that Tenant requires, uses or consumes water provided to the Common Areas for any purpose other than ordinary lavatory purposes, Landlord may install a water meter ( Tenant Water Meter ) and thereby measure Tenants water consumption for all purposes. Tenant shall pay Landlord for the costs of any Tenant Water Meter and the installation and maintenance thereof during the Term. If Landlord installs a Tenant Water Meter, Tenant shall pay for water consumed, as shown on such meter, as and when bills are rendered. If Tenant fails to timely make such payments, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred or payments made by Landlord for any of the reasons or purposes stated in this Section shall be deemed to be Additional Rent payable by Tenant and collectible by Landlord as such.
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16.7. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and utility systems, when Landlord deems necessary or desirable, due to accident, emergency or the need to make repairs, alterations or improvements, until such repairs, alterations or improvements shall have been completed, and, except as provided in Section 16.2 , Landlord shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilation, air conditioning or utility service when prevented from doing so by Force Majeure or, to the extent permitted by Applicable Laws, Landlords negligence; a failure by a third party to deliver gas, oil or another suitable fuel supply; or Landlords inability by exercise of reasonable diligence to obtain gas, oil or another suitable fuel. Without limiting the foregoing, it is expressly understood and agreed that any covenants on Landlords part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of Force Majeure or, to the extent permitted by Applicable Laws, Landlords negligence.
16.8. For the Premises, Landlord shall (a) maintain and operate the HVAC used for typical office use only (and not for uses other than office use, including HVAC related to laboratory fixtures and equipment) and (b) subject to clause (a) above, furnish HVAC as reasonably required (except as this Lease otherwise provides or as to any special requirements that arise from Tenants particular use of the Premises) for reasonably comfortable occupancy of the Premises during normal business hours on normal business days (which, for purposes of this Lease, are defined as Monday through Friday from 8:00 a.m. until 6:00 p.m. and Saturdays from 8:00 a.m. until 1 p.m., excluding holidays recognized as such by the federal government and/or the Commonwealth of Massachusetts) subject to casualty, eminent domain or as otherwise specified in this Article. If Tenant will require HVAC outside normal business hours on normal business days ( Overtime HVAC ), then Landlord shall be obligated to provide Overtime HVAC only if Tenant (y) requests it by 4 p.m. on the immediately preceding business day and (z) requires a minimum of at least two (2) hours of Overtime HVAC. Tenant shall pay Landlord (as Additional Rent outside of Operating Expenses within thirty (30) days of receiving an invoice therefor) Landlords then-current hourly rate for Overtime HVAC for the Premises, the rate of which is currently Fifty Dollars ($50.00) per hour and is subject to change on thirty (30) days prior written notice to Tenant. Notwithstanding anything to the contrary in this Section, except as provided in Section 16.2 , Landlord shall have no liability, and Tenant shall have no right or remedy, on account of any interruption or impairment in HVAC services; provided that Landlord diligently endeavors to cure any such interruption or impairment.
16.9. Notwithstanding anything to the contrary in this Lease, any supplemental HVAC unit servicing the server room within the Premises (the Supplemental HVAC Unit ) shall be the sole responsibility of Tenant and Landlord shall have no obligations with respect thereto. Tenant shall, at its sole cost and expense, maintain and keep the Supplemental HVAC Unit in good condition and repair and shall otherwise be solely responsible for any repair, maintenance and/or replacement costs with respect to the Supplemental HVAC Unit. Tenant shall keep in full force and effect during the Term (and occupancy by Tenant, if any, after termination of this Lease) a
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preventative maintenance contract for quarterly, semi-annual, and annual Supplemental HVAC Unit inspections and maintenance using a qualified, licensed, bonded service provider reasonably approved by Landlord. If requested in writing by Landlord, Tenant shall provide to Landlord copies of the Supplemental HVAC Unit maintenance contracts and the Supplemental HVAC Unit maintenance reports on a quarterly basis. In the event Landlord determines that Tenant is not properly maintaining the Supplemental HVAC Unit, Landlord may take over Tenants responsibilities with respect to the Supplemental HVAC Unit. Any such costs or expenses incurred, or payments made by Landlord as a result of Tenant failing to properly maintain the Supplemental HVAC Unit, shall be deemed to be Additional Rent payable by Tenant outside of Operating Expenses within thirty (30) days of receiving an invoice therefor. Tenant shall pay to Landlord (as Additional Rent outside of Operating Expenses within thirty (30) days of receiving an invoice therefor) all monthly utility charges incurred in connection with running the Supplemental HVAC Unit. Tenant shall pay to Landlord (as Additional Rent outside of Operating Expenses within thirty (30) days of receiving an invoice therefor) an amount equal to all costs incurred by Landlord in connection with purchasing, installing and monitoring any metering equipment Landlord deems reasonably necessary to monitor utility consumption with respect to the Supplemental HVAC Unit. Notwithstanding anything to the contrary in this Lease, Landlord shall have no liability, and Tenant shall have no right or remedy, on account of any interruption or impairment with respect to the Supplemental HVAC Unit.
17. Alterations .
17.1. Tenant shall make no alterations, additions or improvements in or to the Premises or engage in any construction, demolition, reconstruction, renovation, or other work (whether major or minor) of any kind in, at, or serving the Premises ( Alterations ) without Landlords prior written approval, which approval Landlord shall not unreasonably withhold; provided , however, that in the event any proposed Alteration affects (a) any structural portions of the Building, including exterior walls, roof, foundation, foundation systems (including barriers and subslab systems), or core of the Building, (b) the exterior of the Building or (c) any Building systems, including elevator, plumbing, air conditioning, heating, electrical, security, life safety and power, then Landlord may withhold its approval with respect thereto in its reasonable discretion (except with respect to Alterations described in Subsection 17.l(a) , (b) or (c) , in which case Landlord may withhold its approval in its sole and absolute discretion). Tenant shall, in making any such Alterations, use only those architects, contractors, suppliers and mechanics of which Landlord has given prior written approval, which approval shall be in Landlords sole and absolute discretion. In seeking Landlords approval, Tenant shall provide Landlord, at least fourteen (14) days in advance of any proposed construction, with plans, specifications, bid proposals, certified stamped engineering drawings and calculations by Tenants engineer of record or architect of record, (including connections to the Buildings structural system, modifications to the Buildings envelope, non-structural penetrations in slabs or walls, and modifications or tie-ins to life safety systems), work contracts, requests for laydown areas and such other information concerning the nature and cost of the Alterations as Landlord may reasonably request. In no event shall Tenant use or Landlord be required to approve any architects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony. Notwithstanding the foregoing, Tenant may make strictly cosmetic changes to the Premises ( Cosmetic Alterations ) without Landlords consent;
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provided that (y) the cost of any Cosmetic Alterations does not exceed Ten Thousand Dollars ($10,000) annually, (z) such Cosmetic Alterations do not (i) require any structural or other substantial modifications to the Premises, (ii) require any changes to, or adversely affect, the Building systems, (iii) affect the exterior of the Buildings or (iv) trigger any requirement under Applicable Laws that would require Landlord to make any alteration or improvement to the Premises, the Building or the Project. Tenant shall give Landlord at least ten (10) days prior written notice of any Cosmetic Alterations.
17.2. Tenant shall not construct or permit to be constructed partitions or other obstructions that might interfere with free access to mechanical installation or service facilities of the Building or with other tenants components located within the Building, or interfere with the moving of Landlords equipment to or from the enclosures containing such installations or facilities.
17.3. Tenant shall accomplish any work performed on the Premises or the Building in such a manner as to permit any life safety systems to remain fully operable at all times.
17.4. Any work performed on the Premises, the Building or the Project by Tenant or Tenants contractors shall be done at such times and in such manner as Landlord may from time to time reasonably designate. Tenant covenants and agrees that all work done by Tenant or Tenants contractors shall be performed in full compliance with Applicable Laws. Within thirty (30) days after completion of any Alterations, Tenant shall provide Landlord with complete as built drawing print sets and electronic CADD files on disc (or files in such other current format in common use as Landlord reasonably approves or requires) showing any changes in the Premises. Any such as built plans shall show the applicable Alterations as an overlay on the Building as-built plans; provided that Landlord provides the Building as built plans to Tenant.
17.5. Before commencing any Alterations, Tenant shall give Landlord at least fourteen (14) days prior written notice of the proposed commencement of such work and shall, if required by Landlord, secure, at Tenants own cost and expense, a completion and lien indemnity bond satisfactory to Landlord for such work.
17.6. Tenant shall repair any damage to the Premises caused by Tenants removal of any property from the Premises. During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if such space were otherwise occupied by Tenant. The provisions of this Section shall survive the expiration or earlier termination of this Lease.
17.7. The Premises plus any Alterations, Signage, Tenant Improvements, attached equipment, decorations, fixtures, movable laboratory casework and related appliances, trade fixtures, additions and improvements attached to or built into the Premises, made by either of the Parties (including all floor and wall coverings; paneling; sinks and related plumbing fixtures; laboratory benches; exterior venting fume hoods; walk-in freezers and refrigerators; ductwork; conduits; electrical panels and circuits; business and trade fixtures; attached machinery and equipment; and built-in furniture and cabinets, in each case, together with all additions and accessories thereto), shall (unless, prior to such construction or installation, Landlord elects otherwise) at all times remain the property of Landlord, shall remain in the Premises and shall (unless, prior to construction or installation thereof, Landlord elects otherwise) be surrendered to
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Landlord upon the expiration or earlier termination of this Lease. For the avoidance of doubt, the items listed on Exhibit H attached hereto (which Exhibit H may be updated by Tenant from and after the Term Commencement Date, subject to Landlords written consent) constitute Tenants property and shall be removed by Tenant upon the expiration or earlier termination of the Lease.
17.8. Notwithstanding any other provision of this Article to the contrary, in no event shall Tenant remove any improvement from the Premises as to which Landlord contributed payment, including the Tenant Improvements, without Landlords prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
17.9. If Tenant shall fail to remove any of its property from the Premises prior to the expiration or earlier termination of this Lease, then Landlord may, at its option, remove the same in any manner that Landlord shall choose and store such effects without liability to Tenant for loss thereof or damage thereto, and Tenant shall pay Landlord, upon demand, any costs and expenses incurred due to such removal and storage or Landlord may, at its sole option and without notice to Tenant, sell such property or any portion thereof at private sale and without legal process for such price as Landlord may obtain and apply the proceeds of such sale against any (a) amounts due by Tenant to Landlord under this Lease and (b) any expenses incident to the removal, storage and sale of such personal property.
17.10. Tenant shall pay to Landlord, as Additional Rent outside of Operating Expenses and within thirty (30) days of receiving an invoice from Landlord, an amount equal to three percent (3%) of the cost to Tenant of all Alterations (excluding the Tenant Improvements) to cover Landlords overhead and expenses for plan review, coordination, scheduling and supervision thereof. For purposes of payment of such sum, Tenant shall submit to Landlord copies of all bills, invoices and statements covering the costs of such charges, accompanied by payment to Landlord of the fee set forth in this Section. Tenant shall reimburse Landlord for any extra expenses incurred by Landlord by reason of faulty work done by Tenant or its contractors, or by reason of delays caused by such work, or by reason of inadequate clean-up.
17.11. Within sixty (60) days after final completion of any Alterations performed by Tenant with respect to the Premises, Tenant shall submit to Landlord documentation showing the amounts expended by Tenant with respect to such Alterations, together with supporting documentation reasonably acceptable to Landlord.
17.12. Tenant shall take, and shall cause its contractors to take, commercially reasonable steps to protect the Premises during the performance of any Alterations, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage.
17.13. Tenant shall require its contractors and subcontractors performing work on the Premises to name Landlord and its affiliates and Lenders as additional insureds on their respective insurance policies.
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18. Repairs and Maintenance .
18.1. Landlord shall repair and maintain the structural and exterior portions and Common Areas of the Building and the Project, including roofing and covering materials; foundations; exterior walls; plumbing; fire sprinkler systems (if any); heating, ventilating, air conditioning systems; elevators; and electrical systems installed or furnished by Landlord.
18.2. Except for services of Landlord, if any, required by Section 18.1 , Tenant shall at Tenants sole cost and expense maintain and keep the Premises and every part thereof in good condition and repair, damage thereto from ordinary wear and tear excepted. Tenant shall, upon the expiration or sooner termination of the Term, surrender the Premises to Landlord in as good a condition as when received, except for (i) ordinary wear and tear, and (ii) repairs required to be made by Landlord; and shall, at Landlords request and Tenants sole cost and expense, remove all telephone and data systems, wiring and equipment from the Premises, and repair any damage to the Premises caused thereby. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, other than as described in Exhibit B .
18.3. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance that is Landlords obligation pursuant to this Lease unless such failure shall persist for an unreasonable time after Tenant provides Landlord with written notice of the need of such repairs or maintenance. Tenant waives its rights under Applicable Laws now or hereafter in effect to make repairs at Landlords expense.
18.4. If any excavation shall be made upon land adjacent to or under the Building, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter the Premises for the purpose of performing such work as such person shall deem necessary or desirable to preserve and protect the Building from injury or damage and to support the same by proper foundations, without any claim for damages or liability against Landlord and without reducing or otherwise affecting Tenants obligations under this Lease.
18.5. Landlord shall, as an Operating Expense, contract with a third-party service provider for Building standard janitorial services to the Premises, which services shall be provided five (5) nights per week, excluding holidays recognized as such by the federal government and/or the Commonwealth of Massachusetts. Building standard janitorial services shall not include any additional cleaning services such as refrigerator cleaning, microwave cleaning, dish cleaning and carpet cleaning.
18.6. This Article relates to repairs and maintenance arising in the ordinary course of operation of the Building and the Project. In the event of a casualty described in Article 24 , Article 24 shall apply in lieu of this Article. In the event of eminent domain, Article 25 shall apply in lieu of this Article.
18.7. Costs incurred by Landlord pursuant to this Article shall constitute Operating Expenses. Notwithstanding anything to the contrary in this Lease, in the event that Landlord provides a service or services to Tenant or the Premises that are exclusive to Tenant or the Premises (excluding janitorial costs pursuant to Section 18.5 , which shall be included in Operating Expenses), then Tenant shall pay to Landlord (as Additional Rent outside of Operating; Expenses within thirty (30) days of receiving an invoice from Landlord therefor) the amount of any costs incurred by Landlord in providing such service or services plus an additional administrative charge equal to five percent (5%) of the cost of such services.
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19. Liens .
19.1. Subject to the immediately succeeding sentence, Tenant shall keep the Premises, the Building and the Project free from any liens arising out of work or services performed, materials furnished or obligations incurred by Tenant. Tenant further covenants and agrees that any mechanics or materialmans lien filed against the Premises, the Building or the Project for work or services claimed to have been done for, or materials claimed to have been furnished to, or obligations incurred by Tenant shall be discharged or bonded by Tenant within twenty (20) days after the filing thereof, at Tenants sole cost and expense.
19.2. Should Tenant fail to discharge or bond against any lien of the nature described in Section 19.1 , Landlord may, at Landlords election, pay such claim or post a statutory lien bond or otherwise provide security to eliminate the lien as a claim against title, and Tenant shall immediately reimburse Landlord for the actual costs thereof as Additional Rent. Tenant shall indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any Claims arising from any such liens, including any administrative, court or other legal proceedings related to such liens.
19.3. In the event that Tenant leases or finances the acquisition of office equipment, furnishings or other personal property of a removable nature utilized by Tenant in the operation of Tenants business, Tenant warrants that any Uniform Commercial Code financing statement shall, upon its face or by exhibit thereto, indicate that such financing statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Premises, the Building or the Project be furnished on a financing statement without qualifying language as to applicability of the lien only to removable personal property located in an identified suite leased by Tenant. Should any holder of a financing statement record or place of record a financing statement that appears to constitute a lien against any interest of Landlord or against equipment that may be located other than within an identified suite leased by Tenant, Tenant shall, within ten (10) days after filing such financing statement, cause (a) a copy of the Lender security agreement or other documents to which the financing statement pertains to be furnished to Landlord to facilitate Landlords ability to demonstrate that the lien of such financing statement is not applicable to Landlords interest and (b) Tenants Lender to amend such financing statement and any other documents of record to clarify that any liens imposed thereby are not applicable to any interest of Landlord in the Premises, the Building or the Project.
20. Estoppel Certificate . Tenant shall, within ten (10) days of receipt of written notice from Landlord, execute, acknowledge and deliver a statement in writing substantially in the form attached to this Lease as Exhibit I , or on any other form reasonably requested by a proposed Lender or purchaser, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which rental and other charges are paid in advance, if any, (b) acknowledging that there are not, to Tenants knowledge, any uncured defaults on the
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part of Landlord hereunder, or specifying such defaults if any are claimed, and (c) setting forth such further information with respect to this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Property. Tenants failure to deliver such statement within such the prescribed time shall, at Landlords option, constitute a Default (as defined below) under this Lease, and, in any event, shall be binding upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.
21. Hazardous Materials .
21.1. Tenant shall not cause or permit any Hazardous Materials (as defined below) to be brought upon, kept or used in or about the Premises, the Building or the Project in violation of Applicable Laws by any Tenant Party. If (a) Tenant breaches such obligation, (b) the presence of Hazardous Materials as a result of such a breach results in contamination of the Project, any portion thereof, or any adjacent property, (c) contamination of the Premises otherwise occurs during the Term or any extension or renewal hereof or holding over hereunder or (d) contamination of the Project occurs as a result of Hazardous Materials that are placed on or under or are released into the Project by a Tenant Party, then Tenant shall indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any and all Claims, including (w) diminution in value of the Project or any portion thereof, (x) damages for the loss or restriction on use of rentable or usable space or of any amenity of the Project, (y) damages arising from any adverse impact on marketing of space in the Project or any portion thereof and (z) sums paid in settlement of Claims that arise during or after the Term as a result of such breach or contamination. This indemnification by Tenant includes costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any Governmental Authority because of Hazardous Materials present in the air, soil or groundwater above, on or under or about the Project. Without limiting the foregoing, if the presence of any Hazardous Materials in, on, under or about the Project, any portion thereof or any adjacent property caused or permitted by any Tenant Party results in any contamination of the Project, any portion thereof or any adjacent property, then Tenant shall promptly take all actions at its sole cost and expense as are necessary to return the Project, any portion thereof or any adjacent property to its respective condition existing prior to the time of such contamination; provided that Landlords written approval of such action shall first be obtained, which approval Landlord shall not unreasonably withhold; and provided , further, that it shall be reasonable for Landlord to withhold its consent if such actions could have a material adverse long-term or short-term effect on the Project, any portion thereof or any adjacent property.
21.2. Landlord acknowledges that it is not the intent of this Article to prohibit Tenant from operating its business for the Permitted Use. Tenant may operate its business according to the custom of Tenants industry so long as the use or presence of Hazardous Materials is strictly and properly monitored in accordance with Applicable Laws. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord (a) a list identifying each type of Hazardous Material to be present at the Premises that is subject to regulation under any environmental Applicable Laws, (b) a list
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of any and all approvals or permits from Governmental Authorities required in connection with the presence of such Hazardous Material at the Premises and (c) correct and complete copies of (i) notices of violations of Applicable Laws related to Hazardous Materials and (ii) plans relating to the installation of any storage tanks to be installed in, on, under or about the Project (provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord may withhold in its sole and absolute discretion) and closure plans or any other documents required by any and all Governmental Authorities for any storage tanks installed in, on, under or about the Project for the closure of any such storage tanks (collectively, Hazardous Materials Documents ). Tenant shall deliver to Landlord updated Hazardous Materials Documents (1) no later than thirty (30) days prior to the initial occupancy of any portion of the Premises or the initial placement of equipment anywhere at the Project, (m) if there are any changes to the Hazardous Materials Documents, annually thereafter no later than December 31 of each year, and (n) thirty (30) days prior to the initiation by Tenant of any Alterations or changes in Tenants business that involve any material increase in the types or amounts of Hazardous Materials. For each type of Hazardous Material listed, the Hazardous Materials Documents shall include (t) the chemical name, (u) the material state (e.g., solid, liquid, gas or cryogen), (v) the concentration, (w) the storage amount and storage condition (e.g., in cabinets or not in cabinets), (x) the use amount and use condition (e.g., open use or closed use), (y) the location (e.g., room number or other identification) and (z) if known, the chemical abstract service number. Notwithstanding anything in this Section to the contrary, Tenant shall not be required to provide Landlord with any Hazardous Materials Documents containing information of a proprietary nature, which Hazardous Materials Documents, in and of themselves, do not contain a reference to any Hazardous Materials or activities related to Hazardous Materials. Landlord may, at Landlords expense, cause the Hazardous Materials Documents to be reviewed by a person or firm qualified to analyze Hazardous Materials to confirm compliance with the provisions of this Lease and with Applicable Laws. In the event that a review of the Hazardous Materials Documents indicates non-compliance with this Lease or Applicable Laws, Tenant shall, at its expense, diligently take steps to bring its storage and use of Hazardous Materials into compliance.
21.3. Notwithstanding the provisions of Sections 21.1 21.2 or 21.9 , if (a) Tenant or any proposed transferee, assignee or sublessee of Tenant has been required by any prior landlord, Lender or Governmental Authority to take material remedial action in connection with Hazardous Materials contaminating a property if the contamination resulted from such partys action or omission or use of the property in question or (b) Tenant or any proposed transferee, assignee or sublessee is subject to a material enforcement order issued by any Governmental Authority in connection with the use, disposal or storage of Hazardous Materials, then Landlord shall have the right to terminate this Lease in Landlords sole and absolute discretion (with respect to any such matter involving Tenant), and it shall not be unreasonable for Landlord to withhold its consent to any proposed transfer, assignment or subletting (with respect to any such matter involving a proposed transferee, assignee or sublessee).
21.4. At any time, and from time to time, prior to the expiration of the Term, Landlord shall have the right to conduct appropriate tests of the Project or any portion thereof to demonstrate that Hazardous Materials are present or that contamination has occurred due to the acts or omissions of a Tenant Party. Tenant shall pay all reasonable costs of such tests if such tests reveal that Hazardous Materials exist at the Project in violation of this Lease.
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21.5. If underground or other storage tanks storing Hazardous Materials installed or utilized by Tenant are located on the Premises, or are hereafter placed on the Premises by Tenant (or by any other party, if such storage tanks are utilized by Tenant), then Tenant shall monitor the storage tanks, maintain appropriate records, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other steps necessary or required under the Applicable Laws. Tenant shall have no responsibility or liability for underground or other storage tanks installed by anyone other than Tenant unless Tenant utilizes such tanks, in which case Tenants responsibility for such tanks shall be as set forth in this Section.
21.6. Tenant shall promptly report to Landlord any actual or suspected presence of mold or water intrusion at the Premises.
21.7. Tenants obligations under this Article shall survive the expiration or earlier termination of the Lease. During any period of time needed by Tenant or Landlord after the termination of this Lease to complete the removal from the Premises of any such Hazardous Materials, Tenant shall be deemed a holdover tenant and subject to the provisions of Article 27 .
21.8. As used herein, the term Hazardous Material means any hazardous or toxic substance, material or waste that is or becomes regulated by any Governmental Authority.
21.9. Notwithstanding anything to the contrary in this Lease, Landlord shall have sole control over the equitable allocation of fire control areas (as defined in the Uniform Building Code as adopted by the city or municipality(ies) in which the Project is located (the UBC )) within the Project for the storage of Hazardous Materials. Notwithstanding anything to the contrary in this Lease, the quantity of Hazardous Materials allowed by this Section 21.9 is specific to Tenant and shall not run with the Lease in the event of a Transfer (as defined in Article 29 ). In the event of a Transfer, if the use of Hazardous Materials by such new tenant ( New Tenant ) is such that New Tenant utilizes fire control areas in the Project in excess of New Tenants Pro Rata Share of the Project, then New Tenant shall, at its sole cost and expense and upon Landlords written request, establish and maintain a separate area of the Premises classified by the UBC as an H occupancy area for the use and storage of Hazardous Materials, or take such other action as is necessary to ensure that its share of the fire control areas of the Project is not greater than New Tenants Pro Rata Share of the Project.
22. Odors and Exhaust . Tenant acknowledges that Landlord would not enter into this Lease with Tenant unless Tenant assured Landlord that under no circumstances will any other occupants of the Building or the Project (including persons legally present in any outdoor areas of the Project) be subjected to odors or fumes (whether or not noxious), and that the Building and the Project will not be damaged by any exhaust, in each case from Tenants operations. Landlord and Tenant therefore agree as follows:
22.1. Tenant shall not cause or permit (or conduct any activities that would cause) any release of any odors or fumes of any kind from the Premises.
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22.2. If the Building has a ventilation system that, in Landlords judgment, is adequate, suitable, and appropriate to vent the Premises in a manner that does not release odors affecting any indoor or outdoor part of the Project, Tenant shall vent the Premises through such system. If Landlord at any time determines that any existing ventilation system is inadequate, or if no ventilation system exists, Tenant shall in compliance with Applicable Laws vent all fumes and odors from the Premises (and remove odors from Tenants exhaust stream) as Landlord requires. The placement and configuration of all ventilation exhaust pipes, louvers and other equipment shall be subject to Landlords approval. Tenant acknowledges Landlords legitimate desire to maintain the Project (indoor and outdoor areas) in an odor-free manner, and Landlord may require Tenant to abate and remove all odors in a manner that goes beyond the requirements of Applicable Laws.
22.3. Tenant shall, at Tenants sole cost and expense, provide odor eliminators and other devices (such as filters, air cleaners, scrubbers and whatever other equipment may in Landlords judgment be necessary or appropriate from time to time) to completely remove, eliminate and abate any odors, fumes or other substances in Tenants exhaust stream that, in Landlords judgment, emanate from Tenants Premises. Any work Tenant performs under this Section shall constitute Alterations.
22.4. Tenants responsibility to remove, eliminate and abate odors, fumes and exhaust shall continue throughout the Term. Landlords construction of the Tenant Improvements shall not preclude Landlord from requiring additional measures to eliminate odors, fumes and other adverse impacts of Tenants exhaust stream (as Landlord may designate in Landlords discretion). Tenant shall install additional equipment as Landlord requires from time to time under the preceding sentence. Such installations shall constitute Alterations.
22.5. If Tenant fails to install satisfactory odor control equipment within ten (10) business days after Landlords demand made at any time, then Landlord may, without limiting Landlords other rights and remedies, require Tenant to cease and suspend any operations in the Premises that, in Landlords determination, cause odors, fumes or exhaust. For example, if Landlord determines that Tenants production of a certain type of product causes odors, fumes or exhaust, and Tenant does not install satisfactory odor control equipment within ten (10) business days after Landlords request, then Landlord may require Tenant to stop producing such type of product in the Premises unless and until Tenant has installed odor control equipment satisfactory to Landlord.
23. Insurance; Waiver of Subrogation .
23.1. Landlord shall maintain insurance for the Building and the Project in amounts equal to full replacement cost (exclusive of the costs of excavation, foundations and footings, engineering costs or such other costs that would not be incurred in the event of a rebuild and without reference to depreciation taken by Landlord upon its books or tax returns) or such lesser coverage as Landlord may elect, provided that such coverage shall not be less than the amount of such insurance Landlords Lender, if any, requires Landlord to maintain, providing protection against any peril generally included within the classification Fire and Extended Coverage, together with insurance against sprinkler damage (if applicable), vandalism and malicious mischief. Landlord, subject to availability thereof, shall further insure, if Landlord deems it
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appropriate, coverage against flood, environmental hazard, earthquake, loss or failure of building equipment, rental loss during the period of repairs or rebuilding, Workers Compensation insurance and fidelity bonds for employees employed to perform services. Notwithstanding the foregoing, Landlord may, but shall not be deemed required to, provide insurance for any improvements installed by Tenant or that are in addition to the standard improvements customarily furnished by Landlord, without regard to whether or not such are made a part of or are affixed to the Building.
23.2. In addition, Landlord shall carry Commercial General Liability insurance with limits of not less than One Million Dollars ($1,000,000) per occurrence/general aggregate for bodily injury (including death), or property damage with respect to the Project.
23.3. Tenant shall, at its own cost and expense, procure and maintain in effect, beginning on the Term Commencement Date or the date of occupancy, whichever occurs first, and continuing throughout the Term (and occupancy by Tenant, if any, after termination of this Lease) with insurers financially acceptable and lawfully authorized to do business in the state where the Project is located Commercial General Liability insurance on a broad-based occurrence coverage form, with limits of not less than Two Million Dollars ($2,000,000) per occurrence and in the aggregate for bodily injury (including death) and for property damage with respect to the Premises (including $100,000 fire legal liability (each loss)) with a 2,000,000) products and completed operations aggregate. Claims-made coverage is permitted, provided the policy retroactive date is continuously maintained prior to the commencement date of this agreement, and coverage is continuously maintained during all periods in which Tenant occupies the Premises.
23.4. The insurance required to be purchased and maintained by Tenant pursuant to this Lease shall name Landlord, BioMed Realty, L.P., BioMed Realty Trust, Inc., and their respective officers, directors, employees, agents, general partners, members, subsidiaries, affiliates and Lenders ( Landlord Parties ) as additional insureds as respects liability arising from work or operations performed by or on behalf of Tenant and Tenants use or occupancy of the Premises. Said insurance shall be with companies authorized to do business in the state in which the Project is located and at all times having a current rating of not less than A- and financial category rating of at least Class VII in A.M. Bests Insurance Guide current edition. Tenant shall obtain for Landlord from the insurance companies or cause the insurance companies to furnish certificates of insurance evidencing all coverages required herein to Landlord. Landlord reserves the right to require complete, certified copies of all required insurance policies including any endorsements. No such policy shall be cancelable or subject to reduction of coverage or other material modification or cancellation except after thirty (30) days prior written notice to Landlord from the insurer (except in the event of non-payment of premium, in which case ten (10) days written notice shall be given). Should carrier be unwilling or unable to provide such notice, Tenant shall provide notice to Landlord in accordance with this Section. All such policies shall be written as primary policies, not contributing with and not in excess of the coverage that Landlord may carry. Tenants required policies shall contain severability of interests clauses stating that, except with respect to limits of insurance, coverage shall apply separately to each insured or additional insured. Tenants policies shall contain dedicated or per location limits endorsements so that the amounts of insurance required herein shall not be
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prejudiced by losses at other locations. Tenant shall, at least thirty (30) days prior to the expiration of such policies, furnish Landlord with renewal certificates of insurance or binders. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenants behalf and at its cost to be paid by Tenant as Additional Rent.
23.5. Tenant assumes the risk of damage to any fixtures, goods, inventory, merchandise, equipment and leasehold improvements, and Landlord shall not be liable for injury to Tenants business or any loss of income therefrom, relative to such damage, all as more particularly set forth within this Lease. Tenant shall, at Tenants sole cost and expense, carry such insurance as Tenant desires for Tenants protection with respect to personal property of Tenant or business interruption.
23.6. In each instance where insurance is to name Landlord Parties as additional insureds, Tenant shall, upon Landlords written request, also designate and furnish certificates evidencing such Landlord Parties as additional insureds to (a) any Lender of Landlord holding a security interest in the Building, the Property or the Project, (b) the landlord under any lease whereunder Landlord is a tenant of the Property if the interest of Landlord is or shall become that of a tenant under a ground lease rather than that of a fee owner and (c) any management company retained by Landlord to manage the Project.
23.7. Landlord, Tenant and each of their respective insurers hereby waive any and all rights of recovery or subrogation against one another or against the officers, directors, employees, agents, general partners, members, subsidiaries, affiliates and Lenders of the other as respects any loss, damage, claims, suits or demands, howsoever caused, that are covered, or should have been covered, by valid and collectible insurance, including any deductibles or self-insurance maintained thereunder. If necessary, each party agrees to endorse the required insurance policies to permit waivers of subrogation as required hereunder and hold harmless and indemnify the other party for any loss or expense incurred as a result of a failure to obtain such waivers of subrogation from insurers. Such waivers shall continue so long as their respective insurers so permit. Any termination of such a waiver shall be by written notice to the other party, containing a description of the circumstances hereinafter set forth in this Section. Landlord and Tenant, upon obtaining the policies of insurance required or permitted under this Lease, shall give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. If such policies shall not be obtainable with such waiver or shall be so obtainable only at a premium over that chargeable without such waiver, then the party seeking such policy shall notify the other of such conditions, and the party so notified shall have ten (10) days thereafter to either (a) procure such insurance with companies reasonably satisfactory to the other party or (b) agree to pay such additional premium (in Tenants case, in the proportion that the area of the Premises bears to the insured area). If the parties do not accomplish either (a) or (b), then this Section shall have no effect during such time as such policies shall not be obtainable or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium. If such policies shall at any time be unobtainable, but shall be subsequently obtainable, then neither party shall be subsequently liable for a failure to obtain such insurance until a reasonable time after notification thereof by the other party. If the release of either Landlord or Tenant, as set forth in the first sentence of this Section, shall contravene Applicable Laws, then the liability of the party in question shall be deemed not released but shall be secondary to the other partys insurer.
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23.8. Landlord may require insurance policy limits required under this Lease to be raised to conform with requirements of Landlords Lender or to bring coverage limits to levels then being required of new tenants within the Project.
23.9. Any costs incurred by Landlord pursuant to this Article shall constitute a portion of Operating Expenses.
24. Damage or Destruction .
24.1. In the event of a partial destruction of (a) the Premises or (b) Common Areas of the Building or the Project ((a) and (b) together, the Affected Areas ) by fire or other perils covered by extended coverage insurance not exceeding twenty-five percent (25%) of the full insurable value thereof, and provided that (x) the damage thereto is such that the Affected Areas may be repaired, reconstructed or restored within a period of six (6) months from the date of the happening of such casualty, (y) Landlord shall receive insurance proceeds sufficient to cover the cost of such repairs, reconstruction and restoration (except for any deductible amount provided by Landlords policy, which deductible amount, if paid by Landlord, shall constitute an Operating Expense) and (z) such casualty was not intentionally caused by a Tenant Party, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Affected Areas and this Lease shall continue in full force and effect, except that Rent shall be prorated as set forth in Article 24.5 .
24.2. In the event of any damage to or destruction of the Building or the Project other than as described in Section 24.1 , Landlord may elect to repair, reconstruct and restore the Building or the Project, as applicable, in which case this Lease shall continue in full force and effect, except that Rent shall be prorated as set forth in Article 24.5 . If Landlord elects not to repair, reconstruct and restore the Building or the Project, as applicable, then this Lease shall terminate as of the date of such damage or destruction.
24.3. Landlord shall give written notice to Tenant within sixty (60) days following the date of damage or destruction of its election not to repair, reconstruct or restore the Building or the Project, as applicable.
24.4. Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligation to the other from the date possession of the Premises is surrendered to Landlord, except with regard to (a) items occurring prior to the damage or destruction and (b) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.
24.5. In the event of repair, reconstruction and restoration as provided in this Article, all Rent to be paid by Tenant under this Lease shall be abated proportionately based on the extent to which Tenants use of the Premises is impaired during the period of such repair, reconstruction or restoration, unless Landlord provides Tenant with other space during the period of repair, reconstruction and restoration that, in Tenants reasonable opinion, is suitable for the temporary conduct of Tenants business; provided , however, that the amount of such abatement shall be reduced by the proceeds of business interruption or loss of rental income insurance actually received by Tenant with respect to the Premises.
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24.6. Notwithstanding anything to the contrary contained in this Article, should Landlord be delayed or prevented from completing the repair, reconstruction or restoration of the damage or destruction to the Premises after the occurrence of such damage or destruction by Force Majeure or delays caused by a Tenant Party, then the time for Landlord to commence or complete repairs, reconstruction and restoration shall be extended on a day-for-day basis; provided , however, that, at Landlords election, Landlord shall be relieved of its obligation to make such repairs, reconstruction and restoration.
24.7. If Landlord is obligated to or elects to repair, reconstruct or restore as herein provided, then Landlord shall be obligated to make such repairs, reconstruction or restoration only with regard to (a) those portions of the Premises that were originally provided at Landlords expense and (b) the Common Area portion of the Affected Areas. The repairs, reconstruction or restoration of improvements not originally provided by Landlord or at Landlords expense shall be the obligation of Tenant. In the event Tenant has elected to upgrade certain improvements from the Building Standard, Landlord shall, upon the need for replacement due to an insured loss, provide only the Building Standard, unless Tenant again elects to upgrade such improvements and pay any incremental costs related thereto, except to the extent that excess insurance proceeds, if received, are adequate to provide such upgrades, in addition to providing for basic repairs, reconstruction and restoration of the Premises, the Building and the Project.
24.8. Notwithstanding anything to the contrary contained in this Article, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises if the damage resulting from any casualty covered under this Article occurs during the last twelve (12) months of the Term or any extension thereof, or to the extent that insurance proceeds are not available therefor.
24.9. Landlords obligation, should it elect or be obligated to repair, reconstruct or restore, shall be limited to the Affected Areas. Tenant shall, at its expense, replace or fully repair all of Tenants personal property and any Alterations installed by Tenant existing at the time of such damage or destruction. If Affected Areas are to be repaired, reconstructed or restored in accordance with the foregoing, Landlord shall make available to Tenant any portion of insurance proceeds it receives that are allocable to the Alterations constructed by Tenant pursuant to this Lease; provided Tenant is not then in default under this Lease, and subject to the requirements of any Lender of Landlord.
25. Eminent Domain .
25.1. In the event (a) the whole of all Affected Areas or (b) such part thereof as shall substantially interfere with Tenants use and occupancy of the Premises for the Permitted Use shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to such authority, except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.
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25.2. In the event of a partial taking of (a) the Building or the Project or (b) drives, walkways or parking areas serving the Building or the Project for any public or quasi-public purpose by any lawful power or authority by exercise of right of appropriation, condemnation, or eminent domain, or sold to prevent such taking, then, without regard to whether any portion of the Premises occupied by Tenant was so taken, Landlord may elect to terminate this Lease (except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof) as of such taking if such taking is, in Landlords sole opinion, of a material nature such as to make it uneconomical to continue use of the unappropriated portion for purposes of renting office or laboratory space.
25.3. Tenant shall be entitled to any award that is specifically awarded as compensation for (a) the taking of Tenants personal property that was installed at Tenants expense and (b) the costs of Tenant moving to a new location. Except as set forth in the previous sentence, any award for such taking shall be the property of Landlord.
25.4. If, upon any taking of the nature described in this Article, this Lease continues in effect, then Landlord shall promptly proceed to restore the Affected Areas to substantially their same condition prior to such partial taking. To the extent such restoration is infeasible, as determined by Landlord in its sole and absolute discretion, the Rent shall be decreased proportionately to reflect the loss of any portion of the Premises no longer available to Tenant.
26. Surrender .
26.1. At least ten (10) days prior to Tenants surrender of possession of any part of the Premises, Tenant shall provide Landlord with (a) a facility decommissioning and Hazardous Materials closure plan for the Premises ( Exit Survey ) prepared by an independent third party reasonably acceptable to Landlord, (b) written evidence of all appropriate governmental releases obtained by Tenant in accordance with Applicable Laws, including laws pertaining to the surrender of the Premises, and (c) proof that the Premises have been decommissioned in accordance with American National Standards Institute ( ANSI ) Publication Z9.11-2008 (entitled Laboratory Decommissioning) or any successor standards published by ANSI or any successor organization (or, if ANSI and its successors no longer exist, a similar entity publishing similar standards). In addition, Tenant agrees to remain responsible after the surrender of the Premises for the remediation of any recognized environmental conditions set forth in the Exit Survey and compliance with any recommendations set forth in the Exit Survey. Tenants obligations under this Section shall survive the expiration or earlier termination of the Lease. Notwithstanding anything to the contrary, if Tenant has not caused or permitted any Hazardous Materials to be brought upon the Premises during the Term of this Lease, then Tenant shall not be required to fulfill the obligations set forth in this Section 26.1 .
26.2. No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder, unless such surrender is accepted in writing by Landlord.
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26.3. The voluntary or other surrender of this Lease by Tenant shall not effect a merger with Landlords fee title or leasehold interest in the Premises, the Building, the Property or the Project, unless Landlord consents in writing, and shall, at Landlords option, operate as an assignment to Landlord of any or all subleases.
26.4. The voluntary or other surrender of any ground or other underlying lease that now exists or may hereafter be executed affecting the Building or the Project, or a mutual cancellation thereof or of Landlords interest therein by Landlord and its lessor shall not effect a merger with Landlords fee title or leasehold interest in the Premises, the Building or the Property and shall, at the option of the successor to Landlords interest in the Building or the Project, as applicable, operate as an assignment of this Lease.
27. Holding Over .
27.1. If, with Landlords prior written consent, Tenant holds possession of all or any part of the Premises after the Term, Tenant shall become a tenant from month to month after the expiration or earlier termination of the Term, and in such case Tenant shall continue to pay (a) Base Rent in accordance with Article 7 and (b) any amounts for which Tenant would otherwise be liable under this Lease if the Lease were still in effect, including payments for all Additional Rent. Any such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein.
27.2. Notwithstanding the foregoing, if Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without Landlords prior written consent, (a) Tenant shall become a tenant at sufferance subject to the terms and conditions of this Lease, except that the monthly rent shall be equal to one hundred fifty percent (150%) of the Rent in effect during the last thirty (30) days of the Term, and (b) Tenant shall be liable to Landlord for any and all damages suffered by Landlord as a result of such holdover, including any lost rent or consequential, special and indirect damages.
27.3. Acceptance by Landlord of Rent after the expiration or earlier termination of the Term shall not result in an extension, renewal or reinstatement of this Lease.
27.4. The foregoing provisions of this Article are in addition to and do not affect Landlords right of reentry or any other rights of Landlord hereunder or as otherwise provided by Applicable Laws.
27.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.
28. Indemnification and Exculpation .
28.1. Tenant agrees to indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any and all Claims arising from injury or death to any person or damage to any property occurring within or about the Premises, the Building, the Property or the Project arising directly or indirectly out of a Tenant Partys use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, except to the extent caused by Landlords negligence or willful misconduct.
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28.2. Notwithstanding anything in this Lease to the contrary, Landlord shall not be liable to Tenant for and Tenant assumes all risk of (a) damage or losses caused by fire, electrical malfunction, gas explosion or water damage of any type (including broken water lines, malfunctioning fire sprinkler systems, roof leaks or stoppages of lines), unless any such loss is due to Landlords willful disregard of written notice by Tenant of need for a repair that Landlord is responsible to make for an unreasonable period of time, and (b) damage to personal property or scientific research, including loss of records kept by Tenant within the Premises. Tenant further waives any claim for injury to Tenants business or loss of income relating to any such damage or destruction of personal property as described in this Section. Notwithstanding anything in the foregoing or this Lease to the contrary, except (x) as otherwise provided herein, (y) as may be provided by Applicable Laws or (z) in the event of Tenants breach of Article 21 or Section 26.1 , in no event shall Landlord or Tenant be liable to the other for any consequential, special or indirect damages arising out of this Lease.
28.3. Landlord shall not be liable for any damages arising from any act, omission or neglect of any other tenant in the Building or the Project, or of any other third party that is not a Landlord Party.
28.4. Tenant acknowledges that security devices and services, if any, while intended to deter crime, may not in given instances prevent theft or other criminal acts. Landlord shall not be liable for injuries or losses caused by criminal acts of third parties, and Tenant assumes the risk that any security device or service may malfunction or otherwise be circumvented by a criminal. If Tenant desires protection against such criminal acts, then Tenant shall, at Tenants sole cost and expense, obtain appropriate insurance coverage.
28.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.
29. Assignment or Subletting .
29.1. Except as hereinafter expressly permitted, Tenant shall not, either voluntarily or by operation of Applicable Laws, directly or indirectly sell, hypothecate, assign, pledge, encumber or otherwise transfer this Lease or sublet the Premises (each, a Transfer ), without Landlords prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Tenant shall have the right to Transfer without Landlords prior written consent the Premises or any part thereof to any person or entity that as of the date of determination and at all times thereafter directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Tenant ( Tenants Affiliate ); provided that Tenant shall notify Landlord in writing at least thirty (30) days prior to the effectiveness of such Transfer to Tenants Affiliate (an Exempt Transfer ) and otherwise comply with the requirements of this Lease regarding such Transfer; and provided , further, that the person or entity that will be the tenant under this Lease after the Exempt Transfer has a net worth (as of both the day immediately prior to and the day immediately after the Exempt Transfer) that is equal to or greater than the net worth (as of both the Execution Date and the
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date of the Exempt Transfer) of the transferring Tenant. For purposes of Exempt Transfers, control requires both (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person and (b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. In no event shall Tenant perform a Transfer to or with an entity that is a tenant at the Project or that is in discussions or negotiations with Landlord or an affiliate of Landlord to lease premises at the Project or a property owned by Landlord or an affiliate of Landlord.
29.2. In the event Tenant desires to effect a Transfer, then, at least thirty (30) but not more than ninety (90) days prior to the date when Tenant desires the Transfer to be effective (the Transfer Date ), Tenant shall provide written notice to Landlord (the Transfer Notice ) containing information (including references) concerning the character of the proposed transferee, assignee or sublessee; the Transfer Date; the most recent unconsolidated financial statements of Tenant and of the proposed transferee, assignee or sublessee satisfying the requirements of Section 41.2 ( Required Financials ); any ownership or commercial relationship between Tenant and the proposed transferee, assignee or sublessee; and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord shall reasonably require.
29.3. Landlord, in determining whether consent should be given to a proposed Transfer, may give consideration to (a) the financial strength of Tenant and of such transferee, assignee or sublessee (notwithstanding Tenant remaining liable for Tenants performance), (b) any change in use that such transferee, assignee or sublessee proposes to make in the use of the Premises and (c) Landlords desire to exercise its rights under Section 29.8 to cancel this Lease. In no event shall Landlord be deemed to be unreasonable for declining to consent to a Transfer to a transferee, assignee or sublessee of poor reputation, lacking financial qualifications or seeking a change in the Permitted Use, or jeopardizing directly or indirectly the status of Landlord or any of Landlords affiliates as a Real Estate Investment Trust under the Internal Revenue Code of 1986 (as the same may be amended from time to time, the Revenue Code ). Notwithstanding anything contained in this Lease to the contrary, (w) no Transfer shall be consummated on any basis such that the rental or other amounts to be paid by the occupant, assignee, manager or other transferee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of such occupant, assignee, manager or other transferee; (x) Tenant shall not furnish or render any services to an occupant, assignee, manager or other transferee with respect to whom transfer consideration is required to be paid, or manage or operate the Premises or any capital additions so transferred, with respect to which transfer consideration is being paid; (y) Tenant shall not consummate a Transfer with any person in which Landlord owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Revenue Code); and (z) Tenant shall not consummate a Transfer with any person or in any manner that could cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease, license or other arrangement for the right to use, occupy or possess any portion of the Premises to fail to qualify as rents from real property within the meaning of Section 856(d) of the Revenue Code, or any similar or successor provision thereto or which could cause any other income of Landlord to fail to qualify as income described in Section 856(c)(2) of the Revenue Code.
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29.4. The following are conditions precedent to a Transfer or to Landlord considering a request by Tenant to a Transfer:
(a) Tenant shall remain fully liable under this Lease during the unexpired Term. Tenant agrees that it shall not be (and shall not be deemed to be) a guarantor or surety of this Lease, however, and waives its right to claim that is it is a guarantor or surety or to raise in any legal proceeding any guarantor or surety defenses permitted by this Lease or by Applicable Laws;
(b) If Tenant or the proposed transferee, assignee or sublessee does not or cannot deliver the Required Financials, then Landlord may elect to have either Tenants ultimate parent company or the proposed transferees, assignees or sublessees ultimate parent company provide a guaranty of the applicable entitys obligations under this Lease, in a form acceptable to Landlord, which guaranty shall be executed and delivered to Landlord by the applicable guarantor prior to the Transfer Date;
(c) In the case of an Exempt Transfer, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the Transfer qualifies as an Exempt Transfer;
(d) Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the value of Landlords interest under this Lease shall not be diminished or reduced by the proposed Transfer. Such evidence shall include evidence respecting the relevant business experience and financial responsibility and status of the proposed transferee, assignee or sublessee;
(e) Tenant shall reimburse Landlord for Landlords actual costs and expenses, including reasonable attorneys fees, charges and disbursements incurred in connection with the review, processing and documentation of such request not to exceed $2,500 per request. This subsection (e) shall not apply to any Exempt Transfers;
(f) Except with respect to an Exempt Transfer, if Tenants transfer of rights or sharing of the Premises provides for the receipt by, on behalf of or on account of Tenant of any consideration of any kind whatsoever (including a premium rental for a sublease or lump sum payment for an assignment, but excluding Tenants reasonable costs in marketing and subleasing the Premises) in excess of the rental and other charges due to Landlord under this Lease, Tenant shall pay fifty percent (50%) of all of such excess to Landlord, after making deductions for any reasonable marketing expenses, tenant improvement funds expended by Tenant, alterations, cash concessions, brokerage commissions, attorneys fees, furniture leasing or sale and free rent actually paid by Tenant. If such consideration consists of cash paid to Tenant, payment to Landlord shall be made upon receipt by Tenant of such cash payment;
(g) The proposed transferee, assignee or sublessee shall agree that, in the event Landlord gives such proposed transferee, assignee or sublessee notice that Tenant is in default under this Lease, such proposed transferee, assignee or sublessee shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments shall be received by Landlord without any liability being incurred by Landlord, except to credit such payment against those due by Tenant under this Lease, and any such proposed transferee, assignee or sublessee shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided , however, that in no event shall Landlord or its Lenders, successors or assigns be obligated to accept such attornment;
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(h) Landlords consent to any such Transfer shall be effected on Landlords forms;
(i) Tenant shall not then be in default hereunder in any respect;
(j) Such proposed transferee, assignee or sublessees use of the Premises shall be the same as the Permitted Use;
(k) Landlord shall not be bound by any provision of any agreement pertaining to the Transfer, except for Landlords written consent to the same;
(1) Tenant shall pay all transfer and other taxes (including interest and penalties) assessed or payable for any Transfer;
(m) Landlords consent (or waiver of its rights) for any Transfer shall not waive Landlords right to consent or refuse consent to any later Transfer;
(n) Tenant shall deliver to Landlord one executed copy of any and all written instruments evidencing or relating to the Transfer; and
(o) Tenant shall deliver to Landlord a list of Hazardous Materials (as defined below), certified by the proposed transferee, assignee or sublessee to be true and correct, that the proposed transferee, assignee or sublessee intends to use or store in the Premises. Additionally, Tenant shall deliver to Landlord, on or before the date any proposed transferee, assignee or sublessee takes occupancy of the Premises, all of the items relating to Hazardous Materials of such proposed transferee, assignee or sublessee as described in Section 21.2 .
29.5. Any Transfer that is not in compliance with the provisions of this Article or with respect to which Tenant does not fulfill its obligations pursuant to this Article shall be void and shall, at the option of Landlord, terminate this Lease.
29.6. Notwithstanding any Transfer, Tenant shall remain fully and primarily liable for the payment of all Rent and other sums due or to become due hereunder, and for the full performance of all other terms, conditions and covenants to be kept and performed by Tenant. The acceptance of Rent or any other sum due hereunder, or the acceptance of performance of any other term, covenant or condition thereof, from any person or entity other than Tenant shall not be deemed a waiver of any of the provisions of this Lease or a consent to any Transfer.
29.7. If Tenant delivers to Landlord a Transfer Notice indicating a desire to (a) assign this Lease or (b) sublet more than fifty percent (50%) of the Rentable Area of the Premises for more than seventy-five percent (75%) of the then-remaining Term, to a proposed transferee, assignee or sublessee other than as provided within Section 29.4 , then Landlord shall have the option, exercisable by giving notice to Tenant at any time within ten (10) days after Landlords
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receipt of such Transfer Notice, to terminate this Lease as of the date specified in the Transfer Notice as the Transfer Date, except for those provisions that, by their express terms, survive the expiration or earlier termination hereof. If Landlord exercises such option, then Tenant shall have the right to withdraw such Transfer Notice by delivering to Landlord written notice of such election within five (5) days after Landlords delivery of notice electing to exercise Landlords option to terminate this Lease. In the event Tenant withdraws the Transfer Notice as provided in this Section, this Lease shall continue in full force and effect. No failure of Landlord to exercise its option to terminate this Lease shall be deemed to be Landlords consent to a proposed Transfer.
29.8. If Tenant sublets the Premises or any portion thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenants obligations under this Lease, all rent from any such subletting, and appoints Landlord as assignee and attorney-in-fact for Tenant, and Landlord (or a receiver for Tenant appointed on Landlords application) may collect such rent and apply it toward Tenants obligations under this Lease; provided that, until the occurrence of a Default (as defined below) by Tenant, Tenant shall have the right to collect such rent.
30. Subordination and Attornment .
30.1. This Lease shall be subject and subordinate to the lien of any mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter in force against the Building or the Project and to all advances made or hereafter to be made upon the security thereof without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination.
30.2. Notwithstanding the foregoing, provided the same shall not materially adversely effect any of Tenants rights under this Lease, Tenant shall execute and deliver upon demand such further instrument or instruments evidencing such subordination of this Lease to the lien of any such mortgage or mortgages or deeds of trust or lease in which Landlord is tenant as may be required by Landlord. If any such mortgagee, beneficiary or landlord under a lease wherein Landlord is tenant (each, a Mortgagee ) so elects, however, this Lease shall be deemed prior in lien to any such lease, mortgage, or deed of trust upon or including the Premises regardless of date and Tenant shall execute a statement in writing to such effect at Landlords request. If Tenant fails to execute any document required from Tenant under this Section within ten (10) days after written request therefor, Tenant hereby constitutes and appoints Landlord or its special attorney-in-fact to execute and deliver any such document or documents in the name of Tenant. Such power is coupled with an interest and is irrevocable.
30.3. Upon written request of Landlord and opportunity for Tenant to review, Tenant agrees to execute any Lease amendments not materially altering the terms of this Lease, if required by a mortgagee or beneficiary of a deed of trust encumbering real property of which the Premises constitute a part incident to the financing of the real property of which the Premises constitute a part. Tenant may, but shall not be required to, execute any such Lease amendments if the same materially adversely effects any of Tenants rights under this Lease.
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30.4. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall at the election of the purchaser at such foreclosure or sale attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as Landlord under this Lease, provided such purchaser recognizes Tenant as tenant under this Lease and further provided that the term of this Lease and all of Tenants rights hereunder continue undisturbed.
31. Defaults and Remedies .
31.1. Late payment by Tenant to Landlord of Rent and other sums due shall cause Landlord to incur costs not contemplated by this Lease, the exact amount of which shall be extremely difficult and impracticable to ascertain. Such costs include processing and accounting charges and late charges that may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within five (5) business days after the date such payment is due, Tenant shall pay to Landlord (a) an additional sum of six percent (6%) of the overdue Rent as a late charge plus (b) interest at an annual rate (the Default Rate ) equal to the lesser of (a) twelve percent (12%) and (b) the highest rate permitted by Applicable Laws. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord shall incur by reason of late payment by Tenant and shall be payable as Additional Rent to Landlord due with the next installment of Rent or within five (5) business days after Landlords demand, whichever is earlier. Landlords acceptance of any Additional Rent (including a late charge or any other amount hereunder) shall not be deemed an extension of the date that Rent is due or prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity.
31.2. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlords right to recover the balance of such Rent or pursue any other remedy provided in this Lease or in equity or at law. If a dispute shall arise as to any amount or sum of money to be paid by Tenant to Landlord hereunder, Tenant shall have the right to make payment under protest, such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of Tenant to institute suit for recovery of the payment paid under protest.
31.3. If Tenant fails to pay any sum of money required to be paid by it hereunder or perform any other act on its part to be performed hereunder, in each case within the applicable cure period (if any) described in Section 31.4 , then Landlord may (but shall not be obligated to), without waiving or releasing Tenant from any obligations of Tenant, make such payment or perform such act; provided that such failure by Tenant unreasonably interfered with the use of the Building or the Project by any other tenant or with the efficient operation of the Building or the Project, or resulted or could have resulted in a violation of Applicable Laws or the cancellation of an insurance policy maintained by Landlord. Notwithstanding the foregoing, in the event of an emergency, Landlord shall have the right to enter the Premises and act in accordance with its rights as provided elsewhere in this Lease. In addition to the late charge described in Section 31.1 , Tenant shall pay to Landlord as Additional Rent all sums so paid or incurred by Landlord, together with interest at the Default Rate, computed from the date such sums were paid or incurred.
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31.4. The occurrence of any one or more of the following events shall constitute a Default hereunder by Tenant:
(a) Tenant abandons the Premises;
(b) Tenant fails to make any payment of Rent, as and when due, or to satisfy its obligations under Article 19 , where such failure shall continue for a period of five (5) business days after written notice thereof from Landlord to Tenant;
(c) Tenant fails to observe or perform any obligation or covenant contained herein (other than described in Sections 31.4(a) and 31.4(b)) to be performed by Tenant, where such failure continues for a period of twenty (20) days after written notice thereof from Landlord to Tenant; provided that, if the nature of Tenants default is such that it reasonably requires more than twenty (20) days to cure, Tenant shall not be deemed to be in Default if Tenant commences such cure within such twenty (20) day period and thereafter diligently prosecute the same to completion; and provided , further, that such cure is completed no later than thirty (30) days after Tenants receipt of written notice from Landlord;
(d) Tenant makes an assignment for the benefit of creditors;
(e) A receiver, trustee or custodian is appointed to or does take title, possession or control of all or substantially all of Tenants assets;
(f) Tenant files a voluntary petition under the United States Bankruptcy Code or any successor statute (as the same may be amended from time to time, the Bankruptcy Code ) or an order for relief is entered against Tenant pursuant to a voluntary or involuntary proceeding commenced under any chapter of the Bankruptcy Code;
(g) Any involuntary petition is filed against Tenant under any chapter of the Bankruptcy Code and is not dismissed within one hundred twenty (120) days;
(h) Tenant fails to deliver an estoppel certificate in accordance with Article 20 ; or
(i) Tenants interest in this Lease is attached, executed upon or otherwise judicially seized and such action is not released within one hundred twenty (120) days of the action.
Notices given under this Section shall specify the alleged default and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice.
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31.5. In the event of a Default by Tenant, and at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy that Landlord may have, Landlord has the right to do any or all of the following:
(a) Halt any Tenant Improvements and Alterations and order Tenants contractors, subcontractors, consultants, designers and material suppliers to stop work;
(b) Terminate Tenants right to possession of the Premises by written notice to Tenant or by any lawful means, in which case Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby; and
(c) Terminate this Lease, in which event Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby. In the event that Landlord shall elect to so terminate this Lease, then Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenants default, including:
(i) The sum of:
A. The worth at the time of award of any unpaid Rent that had accrued at the time of such termination; plus
B. The worth at the time of award of the amount by which the unpaid Rent that would have accrued during the period commencing with termination of the Lease and ending at the time of award exceeds that portion of the loss of Landlords rental income from the Premises that Tenant proves to Landlords reasonable satisfaction could have been reasonably avoided; plus
C. The worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds that portion of the loss of Landlords rental income from the Premises that Tenant proves to Landlords reasonable satisfaction could have been reasonably avoided; plus
D. Any other amount necessary to compensate Landlord for all the detriment caused by Tenants failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom, including the cost of restoring the Premises to the condition required under the terms of this Lease, including any rent payments not otherwise chargeable to Tenant (e.g., during any free rent period or rent holiday); plus
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E. At Landlords election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Laws; or
(ii) At Landlords election, as minimum liquidated damages in addition to any (A) amounts paid or payable to Landlord pursuant to Section 31.5(c)(i)(A) prior to such election and (B) costs of restoring the Premises to the condition required under the terms of this Lease, an amount (the Election Amount ) equal to either (Y) the positive difference (if any, and measured at the time of such termination) between (1) the then-present value of the total Rent and other benefits that would have accrued to Landlord under this Lease for the remainder of the Term if Tenant had fully complied with the Lease minus (2) the then-present cash rental value of the Premises as determined by Landlord for what would be the then-unexpired Term if the Lease remained in effect, computed using the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one (1) percentage point (the Discount Rate ) or (Z) twelve (12) months (or such lesser number of months as may then be remaining in the Term) of Base Rent and Additional Rent at the rate last payable by Tenant pursuant to this Lease, in either case as Landlord specifies in such election. Landlord and Tenant agree that the Election Amount represents a reasonable forecast of the minimum damages expected to occur in the event of a breach, taking into account the uncertainty, time and cost of determining elements relevant to actual damages, such as fair market rent, time and costs that may be required to re-lease the Premises, and other factors; and that the Election Amount is not a penalty.
As used in Sections 31.5(c)(i)( A) and (B), worth at the time of award shall be computed by allowing interest at the Default Rate. As used in Section 31.5(c)(i)(C) , the worth at the time of the award shall be computed by taking the present value of such amount, using the Discount Rate.
31.6. In addition to any other remedies available to Landlord at law or in equity and under this Lease, Landlord may continue this Lease in effect after Tenants Default and abandonment and recover Rent as it becomes due. In addition, Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Premises. For purposes of this Section, the following acts by Landlord will not constitute the termination of Tenants right to possession of the Premises:
(a) Acts of maintenance or preservation or efforts to relet the Premises, including alterations, remodeling, redecorating, repairs, replacements or painting as Landlord shall consider advisable for the purpose of reletting the Premises or any part thereof; or
(b) The appointment of a receiver upon the initiative of Landlord to protect Landlords interest under this Lease or in the Premises.
Notwithstanding the foregoing, in the event of a Default by Tenant, Landlord may elect at any time to terminate this Lease and to recover damages to which Landlord is entitled.
31.7. If Landlord does not elect to terminate this Lease as provided in Section 31.5 , then Landlord may, from time to time, recover all Rent as it becomes due under this Lease. At any time thereafter, Landlord may elect to terminate this Lease and to recover damages to which Landlord is entitled.
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31.8. In the event Landlord elects to terminate this Lease and relet the Premises, Landlord may execute any new lease in its own name. Tenant hereunder shall have no right or authority whatsoever to collect any Rent from such tenant. The proceeds of any such reletting shall be applied as follows:
(a) First, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord, including storage charges or brokerage commissions owing from Tenant to Landlord as the result of such reletting;
(b) Second, to the payment of the costs and expenses of reletting the Premises, including (i) alterations and repairs that Landlord deems reasonably necessary and advisable and (ii) reasonable attorneys fees, charges and disbursements incurred by Landlord in connection with the retaking of the Premises and such reletting;
(c) Third, to the payment of Rent and other charges due and unpaid hereunder; and
(d) Fourth, to the payment of future Rent and other damages payable by Tenant under this Lease.
31.9. All of Landlords rights, options and remedies hereunder shall be construed and held to be nonexclusive and cumulative. Landlord shall have the right to pursue any one or all of such remedies, or any other remedy or relief that may be provided by Applicable Laws, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any Rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in such waiver. Notwithstanding any provision of this Lease to the contrary, in no event shall Landlord be required to mitigate its damages with respect to any default by Tenant. Any obligation imposed by Applicable Law upon Landlord to relet the Premises after any termination of this Lease shall be subject to the reasonable requirements of Landlord to (a) lease to high quality tenants on such terms as Landlord may from time to time deem appropriate in its discretion and (b) develop the Project in a harmonious manner with a mix of uses, tenants, floor areas, terms of tenancies, etc., as determined by Landlord. Landlord shall not be obligated to relet the Premises to any party to whom Landlord or an affiliate of Landlord may desire to lease other available space in the Project or at another property owned by Landlord or an affiliate of Landlord.
31.10. Landlords termination of (a) this Lease or (b) Tenants right to possession of the Premises shall not relieve Tenant of any liability to Landlord that has previously accrued or that shall arise based upon events that occurred prior to the later to occur of (y) the date of Lease termination and (z) the date Tenant surrenders possession of the Premises.
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31.11. To the extent permitted by Applicable Laws, Tenant waives any and all rights of redemption granted by or under any present or future Applicable Laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises due to Tenants default hereunder or otherwise.
31.12. Landlord shall not be in default or liable for damages under this Lease unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event shall such failure continue for more than thirty (30) days after written notice from Tenant specifying the nature of Landlords failure; provided , however, that if the nature of Landlords obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. In no event shall Tenant have the right to terminate or cancel this Lease or to withhold or abate rent or to set off any Claims against Rent as a result of any default or breach by Landlord of any of its covenants, obligations, representations, warranties or promises hereunder, except as may otherwise be expressly set forth in this Lease.
31.13. In the event of any default by Landlord, Tenant shall give notice by registered or certified mail to any (a) beneficiary of a deed of trust of whom Tenant has notice or (b) if Tenant has notice of the same, mortgagee under a mortgage covering the Premises, the Building or the Project and to any landlord of any lease of land upon or within which the Premises, the Building or the Project is located, and shall offer such beneficiary, mortgagee or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Building or the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided that Landlord shall furnish to Tenant in writing the names and addresses of all such persons who are to receive such notices.
32. Bankruptcy . In the event a debtor, trustee or debtor in possession under the Bankruptcy Code, or another person with similar rights, duties and powers under any other Applicable Laws, proposes to cure any default under this Lease or to assume or assign this Lease and is obliged to provide adequate assurance to Landlord that (a) a default shall be cured, (b) Landlord shall be compensated for its damages arising from any breach of this Lease and (c) future performance of Tenants obligations under this Lease shall occur, then such adequate assurances shall include any or all of the following, as designated by Landlord in its sole and absolute discretion:
32.1. Those acts specified in the Bankruptcy Code or other Applicable Laws as included within the meaning of adequate assurance, even if this Lease does not concern a shopping center or other facility described in such Applicable Laws;
32.2. A prompt cash payment to compensate Landlord for any monetary defaults or actual damages arising directly from a breach of this Lease;
32.3. A cash deposit in an amount at least equal to the then-current amount of the Security Deposit; or
32.4. The assumption or assignment of all of Tenants interest and obligations under this Lease.
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33. Brokers .
33.1. Tenant represents and warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease other than CB Richard Ellis ( Broker ), and that it knows of no other real estate broker or agent that is or might be entitled to a commission in connection with this Lease. Landlord shall compensate Broker in relation to this Lease pursuant to a separate agreement between Landlord and Broker.
33.2. Tenant represents and warrants that no broker or agent has made any representation or warranty relied upon by Tenant in Tenants decision to enter into this Lease, other than as contained in this Lease.
33.3. Tenant acknowledges and agrees that the employment of brokers by Landlord is for the purpose of solicitation of offers of leases from prospective tenants and that no authority is granted to any broker to furnish any representation (written or oral) or warranty from Landlord unless expressly contained within this Lease. Landlord is executing this Lease in reliance upon Tenants representations, warranties and agreements contained within Sections 33.1 and 33.2 .
33.4. Tenant agrees to indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from any and all cost or liability for compensation claimed by any broker or agent, other than Broker, employed or engaged by Tenant or claiming to have been employed or engaged by Tenant.
34. Definition of Landlord . With regard to obligations imposed upon Landlord pursuant to this Lease, the term Landlord , as used in this Lease, shall refer only to Landlord or Landlords then-current successor-in-interest. In the event of any transfer, assignment or conveyance of Landlords interest in this Lease or in Landlords fee title to or leasehold interest in the Property, as applicable, Landlord herein named (and in case of any subsequent transfers or conveyances, the subsequent Landlord) shall be automatically freed and relieved, from and after the date of such transfer, assignment or conveyance, from all liability for the performance of any covenants or obligations contained in this Lease thereafter to be performed by Landlord and, without further agreement, the transferee, assignee or conveyee of Landlords in this Lease or in Landlords fee title to or leasehold interest in the Property, as applicable, shall be deemed to have assumed and agreed to observe and perform any and all covenants and obligations of Landlord hereunder during the tenure of its interest in the Lease or the Property. Landlord or any subsequent Landlord may transfer its interest in the Premises or this Lease without Tenants consent.
35. Limitation of Landlords Liability .
35.1. If Landlord is in default under this Lease and, as a consequence, Tenant recovers a monetary judgment against Landlord, the judgment shall be satisfied only out of (a) the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Building and the Project, (b) rent or other income from such real property receivable by Landlord or (c) the consideration received by Landlord from the sale, financing, refinancing or other disposition of all or any part of Landlords right, title or interest in the Building or the Project.
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35.2. Landlord shall not be personally liable for any deficiency under this Lease. If Landlord is a partnership or joint venture, then the partners of such partnership shall not be personally liable for Landlords obligations under this Lease, and no partner of Landlord shall be sued or named as a party in any suit or action, and service of process shall not be made against any partner of Landlord except as may be necessary to secure jurisdiction of the partnership or joint venture. If Landlord is a corporation, then the shareholders, directors, officers, employees and agents of such corporation shall not be personally liable for Landlords obligations under this Lease, and no shareholder, director, officer, employee or agent of Landlord shall be sued or named as a party in any suit or action, and service of process shall not be made against any shareholder, director, officer, employee or agent of Landlord. If Landlord is a limited liability company, then the members of such limited liability company shall not be personally liable for Landlords obligations under this Lease, and no member of Landlord shall be sued or named as a party in any suit or action, and service of process shall not be made against any member of Landlord except as may be necessary to secure jurisdiction of the limited liability company. No partner, shareholder, director, employee, member or agent of Landlord shall be required to answer or otherwise plead to any service of process, and no judgment shall be taken or writ of execution levied against any partner, shareholder, director, employee, member or agent of Landlord.
35.3. Each of the covenants and agreements of this Article shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by Applicable Laws and shall survive the expiration or earlier termination of this Lease.
36. Joint and Several Obligations . If more than one person or entity executes this Lease as Tenant, then:
36.1. Each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed or performed by Tenant; and
36.2. The term Tenant , as used in this Lease shall mean and include each of them, jointly and severally. The act of, notice from, notice to, refund to, or signature of any one or more of them with respect to the tenancy under this Lease, including any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted, so given or received such notice or refund, or so signed.
37. Representations . Tenant guarantees, warrants and represents that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in the state in which the Property is located, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Lease and to perform all Tenants obligations hereunder, (d) each person (and all of the persons if more than one signs) signing this Lease on behalf of Tenant is duly and validly authorized to do so and (e) neither (i) the execution, delivery or performance of this Lease nor (ii) the consummation of the transactions contemplated hereby will violate or conflict with any provision of documents or instruments under which Tenant is constituted or to which Tenant is a party. In addition, Tenant
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guarantees, warrants and represents that none of (x) it, (y) its affiliates or partners nor (z) to the best of its knowledge, its members, shareholders or other equity owners or any of their respective employees, officers, directors, representatives or agents is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control ( OFAC ) of the Department of the Treasury (including those named on OFACs Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) or other similar governmental action.
38. Confidentiality . Tenant shall keep the terms and conditions of this Lease and any information provided to Tenant or its employees, agents or contractors pursuant to Article 9 confidential and shall not (a) disclose to any third party any terms or conditions of this Lease or any other Lease-related document (including subleases, assignments, work letters, construction contracts, letters of credit, subordination agreements, non-disturbance agreements, brokerage agreements or estoppels) or (b) provide to any third party an original or copy of this Lease (or any Lease-related document). Landlord shall not release to any third party any non-public financial information or non-public information about Tenants ownership structure that Tenant gives Landlord. Notwithstanding the foregoing, confidential information under this Section may be released by Landlord or Tenant under the following circumstances: (x) if required by Applicable Laws or in any judicial proceeding; provided that the releasing party has given the other party reasonable notice of such requirement, if feasible, (y) to a partys attorneys, accountants, brokers and other bona fide consultants or advisers (with respect to this Lease only); provided such third parties agree to be bound by this Section or (z) to bona fide prospective assignees or subtenants of this Lease; provided they agree in writing to be bound by this Section.
39. Notices . Any notice, consent, demand, invoice, statement or other communication required or permitted to be given hereunder shall be in writing and shall be given by personal delivery or by overnight delivery with a reputable nationwide overnight delivery service. If given by personal delivery, any such notice, consent, demand, invoice, statement or other communication shall be deemed delivered upon receipt; if given by overnight delivery, shall be deemed delivered one business (1) day after deposit with a reputable nationwide overnight delivery service. Any notices given pursuant to this Lease shall be addressed to Tenant at the Premises, or to Landlord or Tenant at the addresses shown in Sections 2.9 and 2.10 or 2.11 , respectively. Either party may, by notice to the other given pursuant to this Section, specify additional or different addresses for notice purposes.
40. [Intentionally omitted]
41. Miscellaneous .
41.1. Landlord reserves the right to change the name of the Building or the Project in its sole discretion.
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41.2. To induce Landlord to enter into this Lease, Tenant agrees that it shall promptly furnish to Landlord, from time to time, upon Landlords written request, the most recent year-end unconsolidated financial statements reflecting Tenants current financial condition audited by a nationally recognized accounting firm (subject to the last sentence of this Section). Tenant shall, within ninety (90) days after the end of Tenants financial year, furnish Landlord with a certified copy of Tenants year-end unconsolidated financial statements for the previous year audited by a nationally recognized accounting firm. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects. If audited financials are not otherwise prepared, unaudited financials complying with generally accepted accounting principles reviewed by a certified public accountant and certified by the chief financial officer of Tenant as true, correct and complete in all respects shall suffice for purposes of this Section.
41.3. Where applicable in this Lease, the singular includes the plural and the masculine or neuter includes the masculine, feminine and neuter. The words include, includes, included and including shall mean include, etc., without limitation. The section headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof.
41.4. If either party commences a demand, claim, action, cause of action or suit against the other party arising out of or in connection with this Lease, then the substantially prevailing party shall be reimbursed by the other party for all reasonable costs and expenses, including reasonable attorneys fees and expenses, incurred by the substantially prevailing party in such action or proceeding and in any appeal in connection therewith (regardless of whether the applicable demand, claim, action, cause of action or suit is voluntarily withdrawn or dismissed).
41.5. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant.
41.6. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.
41.7. Notwithstanding anything to the contrary contained in this Lease, Tenants obligations under this Lease are independent and shall not be conditioned upon performance by Landlord.
41.8. Whenever consent or approval of either party is required, that party shall not unreasonably withhold such consent or approval, except as may be expressly set forth to the contrary.
41.9. The terms of this Lease are intended by the parties as a final expression of their agreement with respect to the terms as are included herein, and may not be contradicted by evidence of any prior or contemporaneous agreement.
41.10. Any provision of this Lease that shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and all other provisions of this Lease shall remain in full force and effect and shall be interpreted as if the invalid, void or illegal provision did not exist.
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41.11. Upon the request of either Landlord or Tenant, the parties shall execute a document in recordable form containing only such information as is necessary to constitute a Notice of Lease under Massachusetts law. All costs of preparing and recording such notice shall be borne by the requesting party. Within ten (10) days after receipt of written request from Landlord, Tenant shall execute a termination of any Notice of Lease recorded with respect hereto. Neither party shall record this Lease.
41.12. The language in all parts of this Lease shall be in all cases construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.
41.13. Each of the covenants, conditions and agreements herein contained shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs; legatees; devisees; executors; administrators; and permitted successors, assigns, sublessees. Nothing in this Section shall in any way alter the provisions of this Lease restricting assignment or subletting.
41.14. This Lease shall be governed by, construed and enforced in accordance with the laws of the state in which the Premises are located, without regard to such states conflict of law principles.
41.15. Tenant guarantees, warrants and represents that the individual or individuals signing this Lease have the power, authority and legal capacity to sign this Lease on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
41.16. This Lease may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.
41.17. No provision of this Lease may be modified, amended or supplemented except by an agreement in writing signed by Landlord and Tenant. The waiver by Landlord of any breach by Tenant of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained.
41.18. To the extent permitted by Applicable Laws, the parties waive trial by jury in any action, proceeding or counterclaim brought by the other party hereto related to matters arising out of or in any way connected with this Lease; the relationship between Landlord and Tenant; Tenants use or occupancy of the Premises; or any claim of injury or damage related to this Lease or the Premises.
41.19. Upon thirty (30) days prior written notice to Landlord ( Cease Notice ), Tenant shall have the right to remove Tenants property from, and cease operations in, the Premises at any time and at Tenants sole discretion; provided , however, that (i) such right shall not affect any of Tenants obligations under this Lease (including, without limitation, Tenants obligation to pay all amounts due under this Lease), (ii) Tenant shall, at all times, keep the Premises in broom clean condition and (iii) during any period of time during which Tenant has ceased operations in the Premises, Landlord shall have the right to place film or other coverings on
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windows and doors to the the Premises. At any time following Tenants delivery of a Cease Notice, Landlord shall have the option (in Landlords sole and absolute discretion) to terminate this Lease on ten (10) days prior written notice to Tenant. In the event Landlord delivers such notice to Tenant, this Lease shall terminate as of the day set forth in Landlords notice (except for those provisions that, by their express terms, survive the expiration or earlier termination hereof).
41.20. Notwithstanding anything to the contrary in this Lease, Landlord shall indemnify, save, defend (at Tenants option and with counsel reasonably acceptable to Tenant) and hold the Tenant Parties harmless from and against any and all Claims resulting from the presence of Hazardous Materials at the Project in violation of Applicable Laws as of the Execution Date, unless placed at the Project by a Tenant Party.
42. Option to Extend Term . Tenant shall have the option ( Option ) to extend the Term by five (5) years as to the entire Premises (and no less than the entire Premises) upon the following terms and conditions. Any extension of the Term pursuant to the Option shall be on all the same terms and conditions as this Lease, except as follows:
42.1. Base Rent during the Option term shall equal the then-current fair market value (including fair market annual escalations) for comparable office space in the East Cambridge submarket of comparable age, quality, level of finish and proximity to amenities and public transit ( FMV ). Tenant may, no more than twelve (12) months prior to the date the Term is then scheduled to expire, request Landlords estimate of the FMV for the Option term. Landlord shall, within fifteen (15) days after receipt of such request, give Tenant a written proposal of such FMV. If Tenant gives written notice to exercise the Option, such notice shall specify whether Tenant accepts Landlords proposed estimate of FMV. If Tenant does not accept the FMV, then the parties shall endeavor to agree upon the FMV, taking into account all relevant factors, including (a) the size of the Premises, (b) the length of the Option term, (c) rent in comparable buildings in the relevant submarket, including concessions offered to new tenants, such as free rent, tenant improvement allowances and moving allowances, (d) Tenants creditworthiness and (e) the quality and location of the Building and the Project. In the event that the parties are unable to agree upon the FMV within thirty (30) days after Tenant notifies Landlord that Tenant is exercising the Option, then either party may request that the same be determined as follows: a senior officer of a nationally recognized leasing brokerage firm with local knowledge of the East Cambridge office/research and development leasing submarket (the Baseball Arbitrator ) shall be selected and paid for jointly by Landlord and Tenant. If Landlord and Tenant are unable to agree upon the Baseball Arbitrator, then the same shall be designated by the local chapter of the American Arbitration Association or any successor organization thereto (the AAA ). The Baseball Arbitrator selected by the parties or designated by the AAA shall (y) have at least ten (10) years experience in the leasing of office/research and development space in the East Cambridge submarket and (z) not have been employed or retained by either Landlord or Tenant or any affiliate of either for a period of at least ten (10) years prior to appointment pursuant hereto. Each of Landlord and Tenant shall submit to the Baseball Arbitrator and to the other party its determination of the FMV. The Baseball Arbitrator shall grant to Landlord and Tenant a hearing and the right to submit evidence. The Baseball Arbitrator shall determine which of the two (2) FMV determinations more closely represents the
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actual FMV. The arbitrator may not select any other FMV for the Premises other than one submitted by Landlord or Tenant. The FMV selected by the Baseball Arbitrator shall be binding upon Landlord and Tenant and shall serve as the basis for determination of Base Rent payable for the Option term. If, as of the commencement date of the Option term, the amount of Base Rent payable during the Option term shall not have been determined, then, pending such determination, Tenant shall pay Base Rent equal to the Base Rent payable with respect to the last year of the then-current Term. After the final determination of Base Rent payable for the Option term, the parties shall promptly execute a written amendment to this Lease specifying the amount of Base Rent to be paid during the Option term. Any failure of the parties to execute such amendment shall not affect the validity of the FMV determined pursuant to this Section.
42.2. The Option is not assignable separate and apart from this Lease.
42.3. The Option is conditional upon Tenant giving Landlord written notice of its election to exercise the Option at least nine (9) months prior to the end of the expiration of the then-current Term. Time shall be of the essence as to Tenants exercise of the Option. Tenant assumes full responsibility for maintaining a record of the deadlines to exercise the Option. Tenant acknowledges that it would be inequitable to require Landlord to accept any exercise of the Option after the date provided for in this Section.
42.4. Notwithstanding anything contained in this Article to the contrary, Tenant shall not have the right to exercise the Option:
(a) During the time commencing from the date Landlord delivers to Tenant a written notice that Tenant is in default under any provisions of this Lease and continuing until Tenant has cured the specified default to Landlords reasonable satisfaction; or
(b) At any time after any Default as described in Article 31 of the Lease and continuing until Tenant cures any such Default, if such Default is susceptible to being cured; or
(c) In the event that Tenant has defaulted in the performance of its obligations under this Lease two (2) or more times and a service or late charge has become payable under Section 31.1 for each of such defaults during the twelve (12)-month period immediately prior to the date that Tenant intends to exercise the Option, whether or not Tenant has cured such defaults.
42.5. The period of time within which Tenant may exercise the Option shall not be extended or enlarged by reason of Tenants inability to exercise such Option because of the provisions of Section 42.4 .
42.6. All of Tenants rights under the provisions of the Option shall terminate and be of no further force or effect even after Tenants due and timely exercise of the Option if, after such exercise, but prior to the commencement date of the new term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of twenty (20) days after written notice from Landlord to Tenant, (b) Tenant fails to commence to cure a default (other than a monetary default) within thirty (30) days after the date Landlord gives notice to Tenant of such default or (c) Tenant has defaulted under this Lease two (2) or more times and a service or late charge under Section 31.1 has become payable for any such default, whether or not Tenant has cured such defaults.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
55
IN WITNESS WHEREOF, the parties hereto have executed this Lease as a sealed Massachusetts instrument as of the date first above written.
LANDLORD :
BMR-BROADWAY LLC, a Delaware limited liability company
|
||
By: |
/s/ Kevin M. Simonsen |
|
Name: | Kevin M. Simonsen | |
Title: | VP, Real Estate Legal | |
TENANT : | ||
ADHARMONICS, INC., a Delaware corporation |
||
By: |
/s/ Seth N. Birnbaum |
|
Name: | Seth N. Birnbaum | |
Title: | CEO |
EXHIBIT A
PREMISES
See attached.
A-1
EXHIBIT B
TENANT IMPROVEMENTS
See attached.
B-2
BioMed Realty Trust
7/1/2013
210 Broadway - Adharmonics
Conceptual Development Budget
210 Broadway - Adharmonics |
6,010 sf | |||||||||||||||
TENANT IMPROVEMENT (TURNKEY) |
|
|||||||||||||||
TI | HARD COST |
|
|||||||||||||||
Hard Cost | CM Estimate |
$ | 393,022 | $ | 65.39 | / sf | |||||||||||
Hard Cost Project Contingency |
5.0 | % | $ | 19,651 | $ | 3.27 | / sf | |||||||||
TOTAL - HARD COST |
$ | 412,673 | $ | 68.66 | / sf | |||||||||||
TI | SOFT COST |
||||||||||||||||
Design Fees |
$ | 51,200 | $ | 8.52 | / sf | |||||||||||
Design Reimbursables |
$ | 1,500 | $ | 0.25 | / sf | |||||||||||
Building Commissioning |
$ | 6,000 | $ | 1.00 | / sf | |||||||||||
Multi-Tenant Signage |
$ | 500 | $ | 0.08 | / sf | |||||||||||
Soft Cost Contingency |
10.0 | % | $ | 5,920 | $ | 0.99 | / sf | |||||||||
SUB-TOTAL -SOFT COST |
$ | 65,120 | $ | 10.84 | / sf | |||||||||||
BMR Development Fee |
3.0 | % | $ | 14,764 | $ | 2.46 | / sf | |||||||||
TOTAL - TI / PROJECT BUDGET |
$ | 492,557 | $ | 81.96 | / sf |
BloMed Realty Trust
TENANT IMPROVEMENT ESTIMATE
Adharmonics Third Floor Fit-Out
AST DD plans dated June 26, 2013
ESTIMATE DATE: 6/28/13
Third Floor
DESCRIPTION |
QTY | UNIT | U/P | COST | TOTALS | |||||||||||||
MISCELLANEOUS CARPENTRY |
||||||||||||||||||
WOOD BLOCKING FOR MILLWORK |
0 LOT | $ | 750.00 | $ | 0 | none shown | ||||||||||||
BLOCKING FOR CONFERENCE ROOMS |
2 LOCS | $ | 350.00 | $ | 700 | focus room also | ||||||||||||
BLOCKING FOR WINDOW BLINDS |
LF | $ | 7.00 | $ | 0 | EXISTING | ||||||||||||
TEL- DATA BACKBOARDS |
1 LOCS | $ | 1,500.00 | $ | 1,500 | |||||||||||||
MISC BLOCKING |
1 ALLOW | $ | 750.00 | $ | 750 | |||||||||||||
|
|
|||||||||||||||||
SUBTOTAL MISCELLANEOUS CARPENTRY |
$2,950 | |||||||||||||||||
INTERIOR ARCHITECTURAL WOODWORK |
||||||||||||||||||
OFFICES |
ASSUME NONE | |||||||||||||||||
BOARD ROOM MILLWORK |
ASSUME NONE | |||||||||||||||||
SMALL CONFERENCE ROOMS |
0 ALLOW | $ | 1,500.00 | $ | 0 | |||||||||||||
MEDIUM CONFRERENCE ROOMS |
0 ALLOW | $ | 2,500.00 | $ | 0 | |||||||||||||
RECEPTION AREA MILLWORK |
1 ALLOW | $ | 5,000.00 | NIC | ||||||||||||||
RECEPTION DESK |
0 | ASSUME FURNITURE BY OTHERS | ||||||||||||||||
KITCHEN -UPPERS/LOWERS |
13 LF | $ | 525.00 | $ | 6,825 | PLAM | ||||||||||||
TOPS |
32.5 SF | $ | 160.00 | $ | 5,200 | PLAM | ||||||||||||
MAIN COPY / MAIL ROOM |
||||||||||||||||||
LOWER CABINETS |
0 LF | $ | 325.00 | none shown | ||||||||||||||
SHELVES ABOVE |
0 LF | $ | 125.00 | none shown | ||||||||||||||
TOPS PLAM |
0 LF | $ | 160.00 | none shown | ||||||||||||||
COAT CLOSET SHELF & POLE |
0 LF | $ | 35.00 | $ | 0 | |||||||||||||
STORAGE SHELVING |
ASSUME FURNITURE BY OTHERS | |||||||||||||||||
MISC MILLWORK NOT SHOWN |
1 ALLOW | $ | 2,500.00 | assume none | ||||||||||||||
|
|
|||||||||||||||||
SUBTOTAL INTERIOR ARCH WOODWORK |
$12,025 | |||||||||||||||||
SPRAY FIREPROOFING |
||||||||||||||||||
PATCH FIREPROOFING DAMAGED BY NEW WORK |
1 ALLOW | $ | 2,500.00 | not req In this space | ||||||||||||||
(DUE TO WALL DEMO) |
||||||||||||||||||
|
|
|||||||||||||||||
SUBTOTAL FIRESTOPPING |
$0 | |||||||||||||||||
DOORS, FRAMES & HARDWARE |
||||||||||||||||||
DOORS |
||||||||||||||||||
SINGLE WOOD DOOR & HARDWARE |
8 LVS | $ | 1,100.00 | $ | 8,800 | |||||||||||||
HALF WOOD DOOR & HARDWARE |
0 EA | $ | 600.00 | $ | 0 | |||||||||||||
MISC CLOSET DOOR |
0 PR | $ | 1,500.00 | $ | 0 | |||||||||||||
WOOD DOOR WITH FULLL GLASS INSET |
0 LVS | $ | 1,300.00 | $ | 0 | |||||||||||||
DOUBLE WOOD DOOR WITH GLASS INSET |
0 PR | $ | 2,200.00 | $ | 0 | |||||||||||||
INSTALL HM DOOR FRAMES |
W/DRYWALL | |||||||||||||||||
RACO FRAMING |
472 SF | $ | 15.00 | $ | 7,080 | |||||||||||||
SECURITY DOOR HARDWARE - TBD |
2 ALLOW | $ | 3,500.00 | $ | 7,000 | front and back doors | ||||||||||||
|
|
|||||||||||||||||
SUBTOTAL DOORS, FRAMES & HARDWARE |
$22,880 |
GLASS & GLAZING |
||||||||||||||||||||
3/8 glass In RACO sidelite |
280 SF | $ | 22.00 | $ | 6,160 | 8 HIGH | ||||||||||||||
TEMPERED GLASS DOOR & HARDWARE |
2 LVS | $ | 5,500.00 | $ | 11,000 | AT MAIN ENTRY | ||||||||||||||
TEMPERED GLASS SIDELITES AT ENTRY |
16 SF | $ | 40.00 | $ | 640 | AT MAIN ENTRY | ||||||||||||||
SLIDING DOORS |
0 LVS | $ | 3,800.00 | 0 | ||||||||||||||||
ADD FILM AT GLASS |
0 SF | 15 | 0 | |||||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL GLASS & GLAZING |
$17,800 | |||||||||||||||||||
DRYWALL |
||||||||||||||||||||
PARTITIONS |
||||||||||||||||||||
DEMOLITON OF EXISTING PARTITIONS AND CEILINGS /SO |
4,978 SF | $ | 1.65 | w/cs | ||||||||||||||||
SOFFITS |
0 LF | $ | 35.00 | $ | 0 | |||||||||||||||
ALLOW FOR SOFFITS AT CONF AND KTICHEN |
1 ALLOW | $ | 1,500.00 | $ | 1,500 | |||||||||||||||
STANDARD PARTITION |
269 LF | $ | 88.00 | $ | 23,672 | N.I. Demising Wall | ||||||||||||||
header above raco |
38 If | $ | 82.00 | above | ||||||||||||||||
INTERIOR COLUMN ENCLOSURE |
2 EA | $ | 550.00 | $ | 1,100 | |||||||||||||||
PERIMETER COLUMN ENCLOSURE |
4 EA | W/BASE BUILDING | ||||||||||||||||||
INSTALL RACO FRAMES |
6 EA | $ | 75.00 | IN U/P ABOVE | ||||||||||||||||
GWB CEILING |
0 SF | $ | 9.00 | $ | 0 | |||||||||||||||
DRYWALL UPGRADES |
1 ALLOW | $ | 1,500.00 | $ | 1,500 | |||||||||||||||
PATCH EXISTING PARTITIONS |
1 ALLOW | $ | 2,500.00 | $ | 2,500 | |||||||||||||||
REDO REAR DEMISING CORRIDOR |
0 LF | $ | 105.00 | W/BASE BUILDING | ||||||||||||||||
WINDOW VALANCE |
ASSUME NONE | |||||||||||||||||||
FILE NICHE |
ASSUME NONE | |||||||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL DRYWALL |
$30,272 | |||||||||||||||||||
STONE / TILE |
||||||||||||||||||||
BASE |
0 LF | $ | 30.00 | $ | 0 | ASSUME THIN-SET | ||||||||||||||
FLOOR TILE IN RECEPTION |
0 SF | $ | 18.00 | $ | 0 | |||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL STONE/TILE |
$0 | |||||||||||||||||||
ACCOUSTICAL CEILINGS |
||||||||||||||||||||
ACT-1 2x2 |
1,620 SF | $ | 4.00 | $ | 6,480 | |||||||||||||||
UPGRADE TO PREMIUM ACT |
0 SF | $ | 12.00 | NIC | RECEPTION AREA ONLY | |||||||||||||||
REPLACE EXTG ACT FOR DEMO IN MAIN ELEV LOBBY |
200 SF | $ | 6.00 | W/BASE BUILDING | ||||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL ACCOUSTICAL CEILINGS |
$ | 6,480 | ||||||||||||||||||
RESILIENT FLOORING & BASE |
||||||||||||||||||||
CPT-1, CARPET |
573 SY | $ | 38.00 | $ | 21,782 | |||||||||||||||
OTHER CARPET AT CONF ROOMS |
0 SY | $ | 40.00 | $ | 0 | |||||||||||||||
VCT AT KITCHEN |
210 SF | $ | 6.00 | $ | 1,260 | |||||||||||||||
VCT AT STORAGE AREA |
78 SF | $ | 4.00 | $ | 312 | |||||||||||||||
VCT AT SERVER ROOM |
180 SF | $ | 8.00 | SEE ALT BELOW | ||||||||||||||||
VINYL BASE |
688 LF | $ | 4.00 | $ | 2,752 | |||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL RESILIENT FLOORING & BASE |
$ | 26,106 | ||||||||||||||||||
ACCOUSTICAL TREATMENT |
||||||||||||||||||||
FABRIC WALL PANELS AT CONF ROOMS |
ALLOW | $ | 3,500.00 | $ | 0 | |||||||||||||||
SUBTOTAL ACCOUSTICAL TREATMENT |
ASSUME BY OWNER | |||||||||||||||||||
PAINTING |
||||||||||||||||||||
PAINT PARTITIONS |
8,494 SF | $ | 0.75 | $ | 6,371 | |||||||||||||||
PAINT EXISTING PARTITIONS |
1 lot | $ | 1,500.00 | $ | 1,500 | |||||||||||||||
PAINT COLUMN ENCLOSURE |
3 EA | $ | 100.00 | $ | 300 | |||||||||||||||
prep and paint exposed celling s |
3,358 sf | $ | 3.00 | $ | 10,074 | |||||||||||||||
PAINT GWB CEILINGS/ SOFFITS |
1 LOT | $ | 750.00 | $ | 750 | |||||||||||||||
PAINT CLOSET SHELVING |
0 LF | $ | 12.00 | $ | 0 | |||||||||||||||
PAINT DOORS |
8 EA | $ | 125.00 | PREFINISHED | ||||||||||||||||
PAINT FRAMES |
8 EA | $ | 75.00 | PREFINISHED | ||||||||||||||||
ALLOW FOR PREMIUM FINISHES /ACCENT COLRS |
1 ALLOW | $ | 1,200.00 | $ | 1,200 | |||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL PAINTING |
$20,195 |
SPECIALTIES |
||||||||||||||||||||
FIRE EXTINGUISHERS & CABINETS |
2 EA | $ | 300.00 | $ | 600 | |||||||||||||||
PAPER TOWEL DISPENSER |
0 EA | $ | 200.00 | by tenant | ||||||||||||||||
SOAP DISPENSER |
0 EA | $ | 50.00 | by tenant | ||||||||||||||||
MARKER BOARDS |
BY TENANT | |||||||||||||||||||
VISUAL DISPLAY BOARDS |
BY TENANT | |||||||||||||||||||
AUDIO / VISUAL ALLOWANCE |
BY TENANT | |||||||||||||||||||
TACKBOARDS |
BY TENANT | |||||||||||||||||||
MOTORIZED FILE STORAGE RACK |
BY TENANT | |||||||||||||||||||
MAILSLOTS |
BY TENANT | |||||||||||||||||||
INTERIOR SIGNAGE |
BY TENANT | |||||||||||||||||||
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|
|
|
|||||||||||||||||
SUBTOTAL SPECIALTIES |
$600 | |||||||||||||||||||
EQUIPMENT |
||||||||||||||||||||
APPLIANCES |
||||||||||||||||||||
-MICROWAVE |
1 EA | $ | 450.00 | $ | 450 | |||||||||||||||
-REFRIGERATOR |
1 EA | $ | 2,000.00 | $ | 2,000 | |||||||||||||||
-UNDERCOUNTER DISHWASHER |
0 EA | $ | 1,000.00 | $ | 0 | |||||||||||||||
-INSINKERATOR DISPOSAL UNIT |
1 EA | $ | 250.00 | $ | 250 | |||||||||||||||
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|
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|
|||||||||||||||||
SUBTOTAL EQUIPMENT |
$2,700 | |||||||||||||||||||
FURNISHINGS |
||||||||||||||||||||
WINDOW TREATMENT - manual mecho shade |
0 SF | $ | 8.00 | REUSE EXISTING | ||||||||||||||||
BLACKOUT SHADE AT CONF ROOM |
1 allow | $ | 5,000.00 | NIC | ASSUME NOT CARRYING | |||||||||||||||
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|
|
|
|||||||||||||||||
SUBTOTAL FURNISHINGS |
$0 | |||||||||||||||||||
PLUMBING |
||||||||||||||||||||
SINK AT KITCHEN |
1 EA | 3200.00 | $ | 3,200 | ||||||||||||||||
PUMPED WASTE |
ALLOW | 2500.00 | not reqd | |||||||||||||||||
WATER HEATERS AT SINKS |
1 EA | 1200.00 | $ | 1,200 | ||||||||||||||||
PIPING TO STACKS |
1 LOT | 7500.00 | $ | 7,500 | ||||||||||||||||
INSULATION |
1 LOT | 1600.00 | $ | 1,600 | ||||||||||||||||
WATER FOUNTAINS |
0 EA | 3000.00 | W/BASE BLDG | |||||||||||||||||
WATER FILTRATION SYSTEM- PLUMBING CONN ALLOW |
1 EA | $ | 300.00 | $ | 300 | |||||||||||||||
WATER FILTRATION SYSTEM- ALLOW |
0 EA | DIRECT BUY | ||||||||||||||||||
CONNECTION FOR DISHWASHER |
0 EA | $ | 1,800.00 | $ | 0 | |||||||||||||||
SINK IN WORK AREA |
0 EA | $ | 3,600.00 | $ | 0 | |||||||||||||||
FLOOR DRAINS |
ASSUME NONE | |||||||||||||||||||
CONNECTION FOR ICEMAKER |
1 EA | $ | 750.00 | $ | 750 | |||||||||||||||
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|
|
|
|||||||||||||||||
SUBTOTAL PLUMBING |
$14,550 | |||||||||||||||||||
FIRE PROTECTION |
||||||||||||||||||||
FLOW & TAMPER SWITCH |
BY BASE BUILDING | |||||||||||||||||||
MAINS & CROSS CONNECTS ALLOWANCE |
1 ALLOW | $ | 2,500.00 | $ | 2,500 | |||||||||||||||
REWORK HEADS TENANT AREAS-CONCEALED (ALLOW 1/1 |
35 EA | $ | 175.00 | $ | 6,171 | |||||||||||||||
NEW HEADS (15 % ADDED) |
6 EA | $ | 275.00 | $ | 1,711 | |||||||||||||||
DRAIN DOWNS |
2 EA | $ | 750.00 | $ | 1,500 | |||||||||||||||
HOLD PRESSURE TESTING |
1 HOLD | $ | 1,500.00 | $ | 1,500 | |||||||||||||||
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|
|
|
|||||||||||||||||
SUBTOTAL FIRE PROTECTION |
$13,382 | |||||||||||||||||||
HVAC |
SF | |||||||||||||||||||
DEMO AND MAKE SAFE |
4 md | $ | 600.00 | $ | 2,400 | |||||||||||||||
EQUIPMENT |
$ | 0 | ||||||||||||||||||
FAN POWERED BOXES AT PERIMETER |
4 EA | $ | 1,800.00 | USE EXISTING | ||||||||||||||||
VAV BOXES |
3 EA | $ | 1,400.00 | USE EXISTING | ||||||||||||||||
CONF ROOM BOXES |
1 EA | $ | 1,800.00 | USE EXISTING | ||||||||||||||||
PIPING |
||||||||||||||||||||
SHEET METAL |
||||||||||||||||||||
MEDIUM PRESSURE DUCT LOOP ASSUME .4LBS/SF |
0 LBS | $ | 7.00 | $ | 0 | ASSUMING IT REMAINS | ||||||||||||||
LOW PRESSURE DUCTWK- ASSUME .30 LBS/SF |
1,500 LBS | $ | 9.00 | $ | 13,500 | |||||||||||||||
TRANSFER DUCTS-ALLOW |
7 EA | $ | 250.00 | $ | 1,750 | |||||||||||||||
INSULATION OF DUCTWORK |
1,500 SF | $ | 1.60 | $ | 2,400 | |||||||||||||||
MISC |
||||||||||||||||||||
LINEAR DIFFUSERS |
0 EA | $ | 150.00 | $ | 0 |
NEW G/R/DS |
28 EA | $ | 105.00 | $ | 2,940 | |||||||||||||||
RETURN GRILLS |
14 EA | $ | 95.00 | $ | 1,330 | NON DUCTED | ||||||||||||||
CONTROLS |
||||||||||||||||||||
CONTROLLER/T-STAT |
1 ALLOW | $ | 1,500.00 | $ | 1,500 | |||||||||||||||
DDC CONTROL/MONITORING PTS TIE IN TO BASE SYSTEM |
1 ALLOW | $ | 5,000.00 | W/CORE | ||||||||||||||||
BALANCING |
58 PTS | $ | 75.00 | $ | 4,350 | |||||||||||||||
SPECIALTY COOLIING AT SERVER |
1 SETUPS | $ | 17,500 | SEE BELOW | ||||||||||||||||
VOLUME DAMPERS |
W/UNIT PRICE | |||||||||||||||||||
FIRE/SMOKE DAMPERS |
IN BASE PRICE | |||||||||||||||||||
SUBCONTRACTOR MARKUP 8% |
10 | % | $ | 27,770 | $ | 2,777 | ||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL HVAC |
$32,947 | |||||||||||||||||||
ELECTRICAL |
||||||||||||||||||||
DISTRIBUTION |
1 allow | $ | 5,000.00 | USE EXISTING | ||||||||||||||||
HIGH VOLTAGE PANELS |
1 EA | $ | 6,000.00 | USE EXISTING | ||||||||||||||||
LOW VOLTAGE PANELS |
1 EA | $ | 4,500.00 | USE EXISTING | ||||||||||||||||
NEW TRANSFORMER |
1 EA | $ | 3,500.00 | USE EXISTING | ||||||||||||||||
FEEDERS/ REWORK PANELS PER METERNIG NOTES |
1 LOT | $ | 7,500.00 | $ | 7,500 | |||||||||||||||
CHECK METER |
1 EA | $ | 2,000.00 | natn metering notes | ||||||||||||||||
LIGHTING |
4,978 sf | $ | 5.00 | below | ||||||||||||||||
linear pendants |
116 If | $ | 42.00 | $ | 4,872 | |||||||||||||||
2x2 |
16 ea | $ | 275.00 | $ | 4,400 | |||||||||||||||
recessed |
11 EA | $ | 275.00 | $ | 3,025 | |||||||||||||||
pendants |
7 EA | $ | 600.00 | $ | 4,200 | |||||||||||||||
rough In lites |
49 EA | $ | 180.00 | $ | 8,820 | |||||||||||||||
Install finish fixtures |
49 EA | $ | 90.00 | $ | 4,410 | |||||||||||||||
SWITCHES |
12 EA | $ | 115.00 | $ | 1,380 | |||||||||||||||
MOTION SENSORS |
7 EA | $ | 300.00 | $ | 2,100 | |||||||||||||||
DIMMERS AT CONF ROOM |
1 LOT | $ | 600.00 | $ | 600 | |||||||||||||||
POWER |
||||||||||||||||||||
DUPLEX OUTLET |
16 EA | $ | 115.00 | $ | 1,640 | |||||||||||||||
QUAD OUTLET |
22 EA | $ | 115.00 | $ | 2,530 | |||||||||||||||
GFI OUTLETS |
3 EA | $ | 175.00 | $ | 525 | |||||||||||||||
SPECIAL PURPOSE |
12 EA | $ | 220.00 | ABOVE NOW ?? | TVS | |||||||||||||||
WASTE DISPOSAL JUNCTION BOX |
1 EA | $ | 300.00 | $ | 300 | |||||||||||||||
MULTISERVICE FIRE-RATED POKE-THRU |
1 EA | $ | 900.00 | $ | 900 | |||||||||||||||
SYSTEM FURNITURE |
||||||||||||||||||||
FURNITURE FEED |
9 EA | $ | 1,250.00 | $ | 11,250 | |||||||||||||||
JUNCTION BOX - POWER & TELE/DATA |
0 EA | $ | 300.00 | $ | 0 | |||||||||||||||
RECESSED FLOOR BOX WITH TELE/DATA & POWER |
4 EA | $ | 1,500.00 | $ | 6,000 | |||||||||||||||
RECESSED FLOOR BOX WITH POWER |
0 EA | $ | 750.00 | $ | 0 | |||||||||||||||
POWER / DATA / CATV REQ FOR LCD PROJECTOR |
2 EA | $ | 300.00 | $ | 600 | |||||||||||||||
SERVER ROOM POWER REQUIREMENTS |
180 SF | $ | 55.00 | SEE BELOW | ||||||||||||||||
TABLE OUTLETS IN CONF RM |
1 EA | $ | 450.00 | $ | 450 | |||||||||||||||
WIRE MANAGEMENT- J-HOOKS & UNISTRUT |
1 LOT | $ | 750.00 | $ | 750 | TELDATA ONLY | ||||||||||||||
WIRE FAN POWERED BOX |
5 EA | $ | 600.00 | $ | 3,000 | |||||||||||||||
WIRE VAV BOX |
3 EA | $ | 400.00 | $ | 1,200 | |||||||||||||||
WIRE EXHAUST FAN |
1 EA | $ | 500.00 | $ | 500 | |||||||||||||||
PROJECTION SCREEN INSTALL & WIRING |
0 EA | $ | 900.00 | FF&E |
TELE/DATA |
27 OUTLETS | $ | 375.00 |
|
BY
TENANT |
|
||||||||||||||
AV |
1 allow | $ | 10,000.00 |
|
BY
TENANT |
|
||||||||||||||
DOOR BELL AT FRONT DOOR |
1 EA | $ | 500.00 | $ | 500 | |||||||||||||||
FIRE ALARM |
||||||||||||||||||||
HORN AND STROBE |
5 EA | $ | 450.00 | $ | 2,250 | |||||||||||||||
STROBE ONLY |
EA | $ | 375.00 | $ | 0 | |||||||||||||||
control moduLEs at doors |
3 ea | $ | 525.00 | $ | 1,575 | |||||||||||||||
SMOKE DETECTORS |
0 EA | $ | 475.00 | $ | 0 | |||||||||||||||
DUCT DETECTORS |
EA | $ | 550.00 | $ | 0 | |||||||||||||||
REMOTE TEST STATION |
0 EA | $ | 400.00 | $ | 0 | |||||||||||||||
PULL STATION |
EA | $ | 425.00 | EXISTING | ||||||||||||||||
TESTING AND START UP |
1 LS | $ | 2,500.00 | $ | 2,500 | |||||||||||||||
EDGE LIT EXIT SIGN |
5 EA | $ | 475.00 | $ | 2,375 | |||||||||||||||
EMERGENCY BATTERY PACK LIGHTS(EB) |
5 EA | $ | 450.00 | $ | 2,250 | |||||||||||||||
SECURITY RACEWAY |
1 ALLOW | $ | 1,500.00 | $ | 1,500 | |||||||||||||||
SECURITY - CARD ACCESS SYSTEM |
0 ALLOW | $ | 20,000.00 |
|
BY
TENANT |
|
||||||||||||||
CARD READERS |
|
BY
TENANT |
|
|||||||||||||||||
HEAD END PROGRAMMING |
|
BY
TENANT |
|
|||||||||||||||||
SUBCONTRACTOR MARKUP |
6% | $ | 84,102 | $ | 5,046 | |||||||||||||||
|
|
|
|
|||||||||||||||||
SUBTOTAL ELECTRICAL |
$ | 89,148 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||
TOTAL DIRECT WORK |
$ | 292,035 | $ | 292,035 | ||||||||||||||||
GENERAL CONDITIONS AND JOB EXPENSE |
1 LOT | $ | 35,000 | $ | 35,000 | |||||||||||||||
GEN LIABILITY COST |
1.1 | % | $ | 327,035 | $ | 3,597 | ||||||||||||||
BUILDING PERMITS |
1.5 | % | $ | 330,632 | $ | 4,959 | ||||||||||||||
CONTINGENCY |
3.0 | % | $ | 335,592 | $ | 10,068 | ||||||||||||||
PERFORMANCE & PAYMENT BONDS |
ASSUME NIC | |||||||||||||||||||
WINTER WEATHER ALLOWANCE |
1 ALLOW | NIC | ||||||||||||||||||
FEE |
3.0 | % | $ | 345,660 | $ | 10,370 | ||||||||||||||
|
|
|
|
|||||||||||||||||
TOTAL |
$ | 356,029 | ||||||||||||||||||
|
|
|||||||||||||||||||
SERVER ROOM ALTERNATE (ROOM 312 180 SF) |
||||||||||||||||||||
NEW VCT FLOORING |
180 SF | $ | 8.00 | $ | 1,440 | |||||||||||||||
NEW BASE |
48 LF | $ | 5.00 | $ | 240 | |||||||||||||||
ACT |
180 SF | $ | 5.00 | $ | 900 | |||||||||||||||
PAINT ROOM |
1 LOT | $ | 750.00 | $ | 750 | |||||||||||||||
SECURITY HARDWARE AT DOOR |
1 ALLOW | $ | 3,500.00 | $ | 3,500 | |||||||||||||||
SPECIALTY COOLIING AT SERVER |
1 SETUPS | $ | 17,500 | $ | 17,500 | |||||||||||||||
SERVER ROOM POWER REQUIREMENTS |
180 SF | $ | 55.00 |
|
SEEE
BELOW |
|
||||||||||||||
220 V 30 AMP TWIST LOCK |
4 EA | $ | 800.00 | $ | 3,200 | |||||||||||||||
20 AMP DEDICATED CIRCUITS |
2 EA | $ | 650.00 | $ | 1,300 | |||||||||||||||
WIRE AC UNITS |
2 EA | $ | 1,500.00 | $ | 3,000 | |||||||||||||||
LIGHT ROOM |
4 FIXTURES | $ | 450.00 | $ | 1,800 | |||||||||||||||
SUBTOTAL | $ | 33,630 | ||||||||||||||||||
|
PERMIT,
INS ETC |
|
$ | 3,363 | ||||||||||||||||
TOTAL | $ | 36,993 | ||||||||||||||||||
deduct for office 321 |
1 lot | -$ | 3,500.00 | ($ | 3,500 | ) |
EXHIBIT C
ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE
AND TERM EXPIRATION DATE
THIS ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE AND TERM EXPIRATION DATE is entered into as of [ ], 20 [ ], with reference to that certain Lease (the Lease ) dated as of [ ], 20[ ], by ADHARMONICS, INC., Delaware corporation ( Tenant ), in favor of BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.
Tenant hereby confirms the following:
1. Tenant accepted possession of the Premises for use in accordance with the Permitted Use on [ ], 20[ ]. Tenant first occupied the Premises for the Permitted Use on [ ], 20[ ].
2. The Premises are in good order, condition and repair.
3. The Tenant Improvements are Substantially Complete.
4. The Termination Fee is [ ].
5. All conditions of the Lease to be performed by Landlord as a condition to the full effectiveness of the Lease have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the Premises.
6. In accordance with the provisions of Article 4 of the Lease, the Term Commencement Date is [ ], 20[ ], and, unless the Lease is terminated prior to the Term Expiration Date pursuant to its terms, the Term Expiration Date shall be [ ], 20[ ].
7. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except [ ]].
8. Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.
C-1
9. The obligation to pay Rent is presently in effect and all Rent obligations on the part of Tenant under the Lease commenced to accrue on [ ], 20[ ], with Base Rent payable on the dates and amounts set forth in the chart below:
Dates |
Square Feet
of Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
Months 1 - 12 |
6,010 | $ | 49.00 annually | $ | 24,540.83 | $ | 294,490.00 | |||||||||
Months 13 - 24 |
6,010 | $ | 50.00 annually | $ | 25,041.67 | $ | 300,500.00 | |||||||||
Months 25 - 36 |
6,010 | $ | 51.00 annually | $ | 25,542.50 | $ | 306,510.00 | |||||||||
Months 37 - 48 |
6,010 | $ | 52.00 annually | $ | 26,043.33 | $ | 312,520.00 | |||||||||
Months 49 - 60 |
6,010 | $ | 53.00 annually | $ | 26,544.17 | $ | 318,530.00 |
10. The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
C-2
IN WITNESS WHEREOF, Tenant has executed this Acknowledgment of Term Commencement Date and Term Expiration Date as of the date first written above.
TENANT:
ADHARMONICS, INC.,
a Delaware corporation
By: |
|
|
Name: |
|
|
Title: |
|
C-3
EXHIBIT D
[Intentionally omitted]
D-1
EXHIBIT E
FORM OF LETTER OF CREDIT
[On letterhead or L/C letterhead of Issuer.]
LETTER OF CREDIT
Date: , 20
|
(the Beneficiar y) | |||
|
||||
|
||||
Attention: |
|
|||
L/C. No.: |
|
|||
Loan No.: |
|
Ladies and Gentlemen:
We establish in favor of Beneficiary our irrevocable and unconditional Letter of Credit numbered as identified above (the L/C ) for an aggregate amount of $ , expiring at :00 p.m. on or, if such day is not a Banking Day, then the next succeeding Banking Day (such date, as extended from time to time, the Expiry Date ). Banking Day means a weekday except a weekday when commercial banks in are authorized or required to close.
We authorize Beneficiary to draw on us (the Issuer ) for the account of (the Account Party ), under the terms and conditions of this L/C.
Funds under this L/C are available by presenting the following documentation (the Drawing Documentation ): (a) the original L/C and (b) a sight draft substantially in the form of Attachment 1, with blanks filled in and bracketed items provided as appropriate. No other evidence of authority, certificate, or documentation is required.
Drawing Documentation must be presented at Issuers office at on or before the Expiry Date by personal presentation, courier or messenger service, or fax. Presentation by fax shall be effective upon electronic confirmation of transmission as evidenced by a printed report from the senders fax machine. After any fax presentation, but not as a condition to its effectiveness, Beneficiary shall with reasonable promptness deliver the original Drawing Documentation by any other means. Issuer will on request issue a receipt for Drawing Documentation.
We agree, irrevocably, and irrespective of any claim by any other person, to honor drafts drawn under and in conformity with this L/C, within the maximum amount of this L/C, presented to us on or before the Expiry Date, provided we also receive (on or before the Expiry Date) any other Drawing Documentation this L/C requires.
E-1
We shall pay this L/C only from our own funds by check or wire transfer, in compliance with the Drawing Documentation.
If Beneficiary presents proper Drawing Documentation to us on or before the Expiry Date, then we shall pay under this L/C at or before the following time (the Payment Deadline ): (a) if presentment is made at or before noon of any Banking Day, then the close of such Banking Day; and (b) otherwise, the close of the next Banking Day. We waive any right to delay payment beyond the Payment Deadline. If we determine that Drawing Documentation is not proper, then we shall so advise Beneficiary in writing, specifying all grounds for our determination, within one Banking Day after the Payment Deadline.
Partial drawings are permitted. This L/C shall, except to the extent reduced thereby, survive any partial drawings.
We shall have no duty or right to inquire into the validity of or basis for any draw under this L/C or any Drawing Documentation. We waive any defense based on fraud or any claim o fraud.
The Expiry Date shall automatically be extended by one year (but never beyond (the Outside Date )) unless, on or before the date 90 days before any Expiry Date, we have given Beneficiary notice that the Expiry Date shall not be so extended (a Nonrenewal Notice ). We shall promptly upon request confirm any extension of the Expiry Date under the preceding sentence by issuing an amendment to this L/C, but such an amendment is not required for the extension to be effective. We need not give any notice of the Outside Date.
Beneficiary may from time to time without charge transfer this L/C, in whole but not in part, to any transferee (the Transferee ). Issuer shall look solely to Account Party for payment of any fee for any transfer of this L/C. Such payment is not a condition to any such transfer. Beneficiary or Transferee shall consummate such transfer by delivering to Issuer the original of this L/C and a Transfer Notice substantially in the form of Attachment 2 , purportedly signed by Beneficiary, and designating Transferee. Issuer shall promptly reissue or amend this L/C in favor of Transferee as Beneficiary. Upon any transfer, all references to Beneficiary shall automatically refer to Transferee, who may then exercise all rights of Beneficiary. Issuer expressly consents to any transfers made from time to time in compliance with this paragraph.
Any notice to Beneficiary shall be in writing and delivered by hand with receipt acknowledged or by overnight delivery service such as FedEx (with proof of delivery) at the above address, or such other address as Beneficiary may specify by written notice to Issuer. A copy of any such notice shall also be delivered, as a condition to the effectiveness of such notice, to: (or such replacement as Beneficiary designates from time to time by written notice).
No amendment that adversely affects Beneficiary shall be effective without Beneficiarys written consent.
E-2
This L/C is subject to and incorporates by reference: (a) the International Standby Practices 98 ( ISP 98 ); and (b) to the extent not inconsistent with ISP 98, Article 5 of the Uniform Commercial Code of the State of New York.
Very truly yours, |
[Issuer Signature] |
E-3
ATTACHMENT 1 TO EXHIBIT E
FORM OF SIGHT DRAFT
[B ENEFICIARY L ETTERHEAD ]
TO:
[Name and Address of Issuer]
SIGHT DRAFT
AT SIGHT, pay to the Order of , the sum of United States Dollars ($ ). Drawn under [Issuer] Letter of Credit No. dated .
[Issuer is hereby directed to pay the proceeds of this Sight Draft solely to the following account: .]
[Name and signature block, with signature or purported signature of Beneficiary]
Date:
E-1-1
ATTACHMENT 2 TO EXHIBIT E
FORM OF TRANSFER NOTICE
[B ENEFICIARY L ETTERHEAD ]
TO:
[Name and Address of Issuer] (the Issuer )
TRANSFER NOTICE
By signing below, the undersigned, Beneficiary (the Beneficiary ) under Issuers Letter of Credit No. dated (the L/C ), transfers the L/C to the following transferee (the Transferee ):
[Transferee Name and Address]
The original L/C is enclosed. Beneficiary directs Issuer to reissue or amend the L/C in favor of Transferee as Beneficiary. Beneficiary represents and warrants that Beneficiary has not transferred, assigned, or encumbered the L/C or any interest in the L/C, which transfer, assignment, or encumbrance remains in effect.
[Name and signature block, with signature or purported signature of Beneficiary]
Date: ]
E-2-1
EXHIBIT F
RULES AND REGULATIONS
NOTHING IN THESE RULES AND REGULATIONS ( RULES AND REGULATIONS ) SHALL SUPPLANT ANY PROVISION OF THE LEASE. IN THE EVENT OF A CONFLICT OR INCONSISTENCY BETWEEN THESE RULES AND REGULATIONS AND THE LEASE, THE LEASE SHALL PREVAIL.
1. No Tenant Party shall encumber or obstruct the common entrances, lobbies, elevators, sidewalks and stairways of the Building(s) or the Project or use them for any purposes other than ingress or egress to and from the Building(s) or the Project.
2. Except as specifically provided in the Lease, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside of the Premises or the Building(s) without Landlords prior written consent. Landlord shall have the right to remove, at Tenants sole cost and expense and without notice, any sign installed or displayed in violation of this rule.
3. If Landlord objects in writing to any curtains, blinds, shades, screens, hanging plants or other similar objects attached to or used in connection with any window or door of the Premises or placed on any windowsill, and (a) such window, door or windowsill is visible from the exterior of the Premises and (b) such curtain, blind, shade, screen, hanging plant or other object is not included in plans approved by Landlord, then Tenant shall promptly remove such curtains, blinds, shades, screens, hanging plants or other similar objects at its sole cost and expense.
4. No deliveries shall be made that impede or interfere with other tenants in or the operation of the Project. Movement of furniture, office equipment or any other large or bulky material(s) through the Common Area shall be restricted to such hours as Landlord may designate and shall be subject to reasonable restrictions that Landlord may impose.
5. Tenant shall not place a load upon any floor of the Premises that exceeds the load per square foot that (a) such floor was designed to carry or (b) is allowed by Applicable Laws. Fixtures and equipment that cause noises or vibrations that may be transmitted to the structure of the Building(s) to such a degree as to be objectionable to other tenants shall be placed and maintained by Tenant, at Tenants sole cost and expense, on vibration eliminators or other devices sufficient to eliminate such noises and vibrations to levels reasonably acceptable to Landlord and the affected tenants of the Project.
6. Tenant shall not use any method of heating or air conditioning other than that present at the Project and serving the Premises as of the Term Commencement Date.
7. Tenant shall not install any radio, television or other antennae; cell or other communications equipment; or other devices on the roof or exterior walls of the Premises except in accordance with the Lease. Tenant shall not interfere with radio, television or other digital or electronic communications at the Project or elsewhere.
F-1
8. Canvassing, peddling, soliciting and distributing handbills or any other written material within, on or around the Project (other than within the Premises) are prohibited. Tenant shall cooperate with Landlord to prevent such activities by any Tenant Party.
9. Tenant shall store all of its trash, garbage and Hazardous Materials in receptacles within its Premises or in receptacles designated by Landlord outside of the Premises. Tenant shall not place in any such receptacle any material that cannot be disposed of in the ordinary and customary manner of trash, garbage and Hazardous Materials disposal. Any Hazardous Materials transported through Common Areas shall be held in secondary containment devices.
10. The Premises shall not be used for lodging or for any improper, immoral or objectionable purpose. No cooking shall be done or permitted in the Premises; provided , however, that Tenant may use (a) equipment approved in accordance with the requirements of insurance policies that Landlord or Tenant is required to purchase and maintain pursuant to the Lease for brewing coffee, tea, hot chocolate and similar beverages, (b) microwave ovens for employees use and (c) equipment shown on plans approved by Landlord; provided , further, that any such equipment and microwave ovens are used in accordance with Applicable Laws.
11. Tenant shall not, without Landlords prior written consent, use the name of the Project, if any, in connection with or in promoting or advertising Tenants business except as Tenants address.
12. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any Governmental Authority.
13. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which responsibility includes keeping doors locked and other means of entry to the Premises closed.
14. Tenant shall not modify any locks to the Premises without Landlords prior written consent, which consent Landlord shall not unreasonably withhold, condition or delay. Tenant shall furnish Landlord with copies of keys, pass cards or similar devices for locks to the Premises.
15. Tenant shall cooperate and participate in all reasonable security programs affecting the Premises.
16. Tenant shall not permit any animals in the Project, other than for guide animals or for use in laboratory experiments.
17. Bicycles shall not be taken into the Building(s) except into areas designated by Landlord.
18. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags or other substances shall be deposited therein.
F-2
19. Discharge of industrial sewage shall only be permitted if Tenant, at its sole expense, first obtains all necessary permits and licenses therefor from all applicable Governmental Authorities.
20. Smoking is prohibited at the Project.
21. Subject to the limitations set forth in Section 16.8 of the Lease, the Projects hours of accessibility are currently 24 hours a day, seven days a week.
22. Tenant shall comply with all orders, requirements and conditions now or hereafter imposed by Applicable Laws or Landlord ( Waste Regulations ) regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash generated by Tenant (collectively, Waste Products ), including (without limitation) the separation of Waste Products into receptacles reasonably approved by Landlord and the removal of such receptacles in accordance with any collection schedules prescribed by Waste Regulations.
23. Tenant, at Tenants sole cost and expense, shall cause the Premises to be exterminated on a monthly basis to Landlords reasonable satisfaction and shall cause all portions of the Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily in a manner reasonably satisfactory to Landlord, and to be treated against infestation by insects, rodents and other vermin and pests whenever there is evidence of any infestation. Tenant shall not permit any person to enter the Premises or the Project for the purpose of providing such extermination services, unless such persons have been approved by Landlord. If requested by Landlord, Tenant shall, at Tenants sole cost and expense, store any refuse generated in the Premises by the consumption of food or beverages in a cold box or similar facility.
24. If Tenant desires to use any portion of the Common Area for a Tenant-related event, Tenant must notify Landlord in writing at least thirty (30) days prior to such event on the form attached as Attachment 1 to this Exhibit, which use shall be subject to Landlords prior written consent, not to be unreasonably withheld, conditioned or delayed. Notwithstanding anything in this Lease or the completed and executed Attachment to the contrary, Tenant shall be solely responsible for setting up and taking down any equipment or other materials required for the event, and shall promptly pick up any litter and report any property damage to Landlord related to the event. Any use of the Common Area pursuant to this Section shall be subject to the provisions of Article 28 of the Lease.
Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project, including Tenant. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms covenants, agreements and conditions of the Lease. Landlord reserves the right to make such other and reasonable rules and regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness of the Project, or the preservation of good order therein; provided , however, that Tenant shall not be obligated to adhere to such additional rules or regulations until Landlord has provided Tenant with written notice thereof. Tenant agrees to abide by these Rules and Regulations and any additional rules and regulations issued or adopted by Landlord. Tenant shall be responsible for the observance of these Rules and Regulations by all Tenant Parties.
F-3
ATTACHMENT 1 TO EXHIBIT F
REQUEST FOR USE OF COMMON AREA
[TENANT LETTERHEAD]
VIA [ ]
[Date]
BMR-Broadway LLC
17190 Bernardo Center Drive
San Diego, California 92128
Attn: Senior Director, East Coast Operations
Re: Notice of Request to Use Common Area
To Whom It May Concern:
AdHarmonics, Inc. requests that it have use of the common area as described below:
Event Description:
Date:
Location at Property:
Number of Attendees:
Open to the Public? [ ] YES [ ] NO
Food and/or Beverages? [ ] YES [ ] NO
If YES:
| will alcohol be served (Note: Proof of an insurance endorsement for serving alcohol must be provided) [ ] YES [ ] NO |
| please describe: |
Other Amenities (tent, band, etc.):
Other Event Details:
Please let us know at your earliest convenience whether such use is approved.
Sincerely,
F-1-1
[Name]
[Title]
To Be Completed by Landlord :
[ ] APPROVED DENIED [ ]
The following conditions apply to approval (if approved):
1. |
2. |
3. |
4.
5.
BMR-BROADWAY LLC
By: |
|
|
Name: |
|
|
Its: |
|
|
Date: |
|
F-2
EXHIBIT G
PARKING AND TRANSPORTATION DEMAND MANAGEMENT PLAN
See attached twelve (12) pages.
G-1
EXHIBIT H
TENANTS PROPERTY
None.
H-1
EXHIBIT I
FORM OF ESTOPPEL CERTIFICATE
To: | BMR-Broadway LLC |
17190 Bernardo Center Drive
San Diego, California 92128
Attention: Vice President, Real Estate Legal
BioMed Realty, L.P.
17190 Bernardo Center Drive
San Diego, California 92128
Re: | Certain premises (the Premises ) on the third (3 rd ) floor of the building located at 210 |
Broadway, Cambridge, Massachusetts (the Property )
The undersigned tenant ( Tenant ) hereby certifies to you as follows:
1. Tenant is a tenant at the Property under a lease (the Lease ) for the Premises dated as of [ ], 20[ ]. The Lease has not been cancelled, modified, assigned, extended or amended [except as follows: [ ]], and there are no other agreements, written or oral, affecting or relating to Tenants lease of the Premises or any other space at the Property. The lease term expires on [ ], 20[ ].
2. Tenant took possession of the Premises, currently consisting of [ ] square feet, on [ ], 20[ ], and commenced to pay rent on [ ], 20[ ]. Tenant has full possession of the Premises, has not assigned the Lease or sublet any part of the Premises, and does not hold the Premises under an assignment or sublease[, except as follows: [ ]].
3. All base rent, rent escalations and additional rent under the Lease have been paid through [ ], 20[ ]. There is no prepaid rent[, except $[ ]][, and the amount of security deposit is $[ ] [in cash][OR][in the form of a letter of credit]]. Tenant currently has no right to any future rent abatement under the Lease.
4. Base rent is currently payable in the amount of $[ ] per month.
5. Tenant is currently paying estimated payments of additional rent of $[ ] per month on account of real estate taxes, insurance, management fees and common area maintenance expenses.
6. All work to be performed for Tenant under the Lease has been performed as required under the Lease and has been accepted by Tenant[, except [ ]], and all allowances to be paid to Tenant, including allowances for tenant improvements, moving expenses or other items, have been paid.
7. The Lease is in full force and effect, free from default and free from any event that could become a default under the Lease, and Tenant has no claims against the landlord or offsets or defenses against rent, and there are no disputes with the landlord. Tenant has received no notice of prior sale, transfer, assignment, hypothecation or pledge of the Lease or of the rents payable thereunder[, except [ ]].
I-1
8. [Tenant has the following expansion rights or options for the Property: [ ].] [OR] [Tenant has no rights or options to purchase the Property.]
9. To Tenants knowledge, no hazardous wastes have been generated, treated, stored or disposed of by or on behalf of Tenant in, on or around the Premises or the Project in violation of any environmental laws.
10. The undersigned has executed this Estoppel Certificate with the knowledge and understanding that [INSERT NAME OF LANDLORD, PURCHASER OR LENDER, AS APPROPRIATE] or its assignee is acquiring the Property in reliance on this certificate and that the undersigned shall be bound by this certificate. The statements contained herein may be relied upon by [INSERT NAME OF PURCHASER OR LENDER, AS APPROPRIATE], [LANDLORD], BioMed Realty, L.P., BioMed Realty Trust, Inc., and any [other] mortgagee of the Property and their respective successors and assigns.
Any capitalized terms not defined herein shall have the respective meanings given in the Lease.
Dated this [ ] day of [ ], 20[ ].
ADHARMONICS, INC.,
a Delaware corporation
By: |
|
|
Name: |
|
|
Title: |
|
I-2
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this
Amendment
) is entered into as of this
30
th
day of September, 2013, by and between
BMR-BROADWAY
LLC, a Delaware limited liability company
(
Landlord
), and ADHARMONICS, INC., a Delaware corporation (
Tenant
).
RECITALS
A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of July 24, 2013 (as the same may have been amended, supplemented or modified from time to time, the Lease ), whereby Tenant leases certain premises (the Premises ) from Landlord at 210 Broadway in Cambridge, Massachusetts (the Building );
B. WHEREAS, Landlord and Tenant desire to provide flexibility for changes to the plans and specifications attached to the Lease as Exhibit B (the Tenant Improvement Plans ); and
C. WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein. The Lease, as amended by this Amendment, is referred to herein as the Amended Lease .
2. Changes to the Tenant Improvements . Any changes to the Tenant Improvement Plans requested by Tenant (each, a Change ) shall be requested and instituted in accordance with the provisions of this Article 2 and shall be subject to the written approval of Landlord.
2.1 Change Request . Tenant may request Changes by notifying Landlord in writing in substantially the same form as the AIA standard change order form (a Change Request), which Change Request shall detail the nature and extent of any requested Changes.
2.2 Approval of Changes . All Change Requests shall be subject to Landlords prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed ( provided , however, that, in the event any Change would, in Landlords sole but reasonable judgment, delay the Substantial Completion of the Tenant Improvements, Landlord may withhold its approval with respect thereto in its sole and absolute discretion).
2.3 Cost of Changes . Notwithstanding anything to the contrary in the Amended Lease, Tenant shall be solely responsible for all costs and expenses related to any Changes (including, without limitation, costs of project management by Landlord (which fee shall equal three percent (3%) of the cost of the Change)). Tenant shall, within thirty (30) days of receiving an invoice therefore, pay to Landlord the amount of any such costs.
2.4 Delay of Substantial Completion . Notwithstanding anything to the contrary in the Amended Lease, the Abatement Date shall be subject to extension on a day-for-day basis as a result of any delay in Substantial Completion of the Tenant Improvements as a result of a Change.
2.5 Tenant Improvement Plans . The Tenant Improvement Plans shall be automatically updated to include any Changes approved by Landlord in accordance with this Article 2 .
3. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.
4. No Default . Tenant represents, warrants and covenants that, to the best of Tenants knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
5. Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term Lease as used in the Lease shall mean the Lease, as modified by this Amendment.
6. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
7. Authority . Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
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8. Counterparts . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.
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IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.
LANDLORD :
BMR-BROADWAY LLC,
a Delaware limited liability company
By: |
/s/ Kevin M. Simonsen |
|
Name: | Kevin M. Simonsen | |
Title: | VP, Real Estate Legal |
TENANT :
ADHARMONICS, INC.,
a Delaware corporation
By: |
/s/ Seth Birnbaum |
|
Name: | Seth Birnbaum | |
Title: | CEO |
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (this Amendment ) is entered into as of this 30 th day of January , 20 15 (the Execution Date ), by and between BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ), and EVERQUOTE, INC., a Delaware corporation ( Tenant , f/k/a AdHarmonics, Inc.).
RECITALS
A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013 (collectively, and as the same may have been heretofore further amended, amended and restated, supplemented or modified from time to time, the Existing Lease ), whereby Tenant leases certain premises (the Original Premises ) from Landlord at 210 Broadway in Cambridge, Massachusetts (the Building );
B. WHEREAS, Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord, an additional approximately eight thousand seven hundred fifty (8,750) rentable square feet of space located on the fourth (4 th ) floor of the Building, as shown on Exhibit A attached hereto (the Additional Premises );
C. WHEREAS, Landlord and Tenant desire to extend the Term set forth in the Existing Lease; and
D. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the Lease .
2. Additional Premises . Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, as of the Additional Premises Term Commencement Date (as defined below), the Additional Premises for use by Tenant in accordance with the Permitted Use and no other uses without Landlords prior written consent. Tenants leasing of the Additional Premises shall be upon all of the same terms and conditions of the Lease applicable to the Original Premises, except to the extent inconsistent with the provisions of this Amendment. From and after the Additional Premises Commencement Date, the term Premises , as used in the Lease, shall (i) mean the Original Premises plus the Additional Premises and (ii) contain approximately fourteen thousand seven hundred sixty (14,760) square feet of Rentable Area.
3. Additional Premises Term Commencement Date . The term with respect to the Additional Premises shall commence on the earlier to occur of the following: (a) occupancy of the Additional Premises by Tenant or (b) three (3) months after the Execution Date (either (a) or (b), the Additional Premises Term Commencement Date ). Tenant shall execute and deliver to Landlord written acknowledgment of the actual Additional Premises Term Commencement Date and the Amended Term Expiration Date within ten (10) business days after Tenant takes occupancy of the Additional Premises, in substantially the form attached as Exhibit B hereto. Failure to execute and deliver such acknowledgment, however, shall not affect the Additional Premises Term Commencement Date or Landlords or Tenants liability hereunder. Failure by Tenant to obtain validation by any governmental licensing agency of the Additional Premises required for the Permitted Use by Tenant shall not serve to extend the Additional Premises Term Commencement Date.
4. Term . The term with respect to the Additional Premises shall commence on the Additional Premises Term Commencement Date and shall expire on the date that is sixty (60) months after the actual Additional Premises Term Commencement Date (such date, the Amended Term Expiration Date ), subject to Tenants option to extend the Term of the Lease for the Additional Premises as set forth in Section 14 below.
5. Additional Premises Improvements .
(a) Tenant shall cause the work (the Additional Premises Improvements ) described in the Work Letter attached hereto as Exhibit C (the Work Letter ) to be constructed in the Additional Premises at a cost to Landlord not to exceed Two Hundred Sixty-Two Thousand Five Hundred and 00/100 Dollars ($262,500.00) (based upon Thirty and 00/100 Dollars ($30.00) per square foot of Rentable Area of the Additional Premises) (the TI Allowance ). The TI Allowance may be applied to the costs of (i) construction, (ii) project review by Landlord (which fee shall equal Landlords actual third-party costs and expenses for managing and reviewing the Additional Premises Improvements not to exceed Five Thousand Two Hundred and Fifty Dollars ($5,250.00), (iii) commissioning of mechanical, electrical and plumbing systems by a licensed, qualified commissioning agent hired by Tenant, and review of such partys commissioning report by a licensed, qualified commissioning agent hired by Landlord, (iv) space planning, architect, engineering and other related services performed by third parties unaffiliated with Tenant, (v) building permits and other taxes, fees, charges and levies by Governmental Authorities for permits or for inspections of the Additional Premises Improvements, (vi) costs and expenses for labor, material, equipment and fixtures and (v) subject to the Soft Cost Limit described below, soft costs for data/telecom cabling, signage, relocation expenses and furniture, fixtures and equipment (collectively, the Soft Costs ). In no event shall the TI Allowance be used for (A) the cost of work that is not authorized by the Approved Plans (as defined in the Work Letter) or otherwise approved in writing by Landlord, (B) payments to Tenant or any affiliates of Tenant, (C) except as otherwise provided herein, the purchase of any furniture, personal property or other non-building system equipment, (D) costs resulting from any default by Tenant of its obligations under this Lease or (E) costs that are recoverable by Tenant from a third party (e.g., insurers, warrantors, or tortfeasors). Notwithstanding anything set forth herein to the contrary, Tenant may apply up to Thirty-Nine Thousand Three Hundred Seventy-Five and 00/100 Dollars ($39,375.00) (based upon Four and 50/100 Dollars ($4.50) per square foot of Rentable Area of the Additional Premises) (the Soft Cost Limit ) of the TI Allowance towards the Soft Costs identified above.
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(b) Tenant shall have until October 1, 2015 (the TI Deadline ) to expend the unused portion of the TI Allowance, after which date Landlords obligation to fund such costs shall expire.
(c) In no event shall any unused TI Allowance entitle Tenant to a credit against Rent payable under the Lease. Tenant shall deliver to Landlord (i) a certificate of occupancy for the Additional Premises suitable for the Permitted Use and (ii) a Certificate of Substantial Completion in the form of the American Institute of Architects document G704, executed by the project architect and the general contractor. The term Substantially Complete or Substantial Completion means that the Additional Premises Improvements are substantially complete in accordance with the Approved Plans (as defined in the Work Letter), except for minor punch list items.
(d) Prior to entering upon the Additional Premises, Tenant shall furnish to Landlord evidence reasonably satisfactory to Landlord that insurance coverages required of Tenant under the provisions of Article 23 of the Existing Lease are in effect, and such entry shall be subject to all the terms and conditions of the Lease.
(e) Landlord shall approve Tenants selection of the architect, engineer, general contractor and major subcontractors. Landlords approval of Tenants third-party providers shall not be unreasonably withheld, conditioned or delayed; provided, however, that Landlord may refuse to use any architects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony.
6. Pro Rata Share . Effective as of the Additional Premises Term Commencement Date, the table in Section 2.2 of the Existing Lease shall be deleted and replaced with the following table:
Definition or Provision |
Means the Following (As of the
Additional Premises Term Commencement Date) |
|||
Approximate Rentable Area of the Premises |
14,760 | |||
Approximate Rentable Area of Project |
64,812 | |||
Tenants Pro Rata Share |
22.77 | % |
7. Rent for Additional Premises . Commencing on the Additional Premises Term Commencement Date and during the Term, Tenant shall pay to Landlord as Rent for the Additional Premises, the following amounts:
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(a) Monthly and annual installments of Base Rent for the Additional Premises (on a gross plus electric basis) shall be as set forth in the table below:
Dates |
Square Feet of Rentable Area |
Base Rent per Square Foot of Rentable Area |
Monthly Base Rent |
Annual Base Rent |
||||
Year 1 |
8,750 | $58.00 annually | $42,291.67 | $507,500.00 | ||||
Year 2 |
8,750 | $59.00 annually | $43,020.83 | $516,250.00 | ||||
Year 3 |
8,750 | $60.00 annually | $43,750.00 | $525,000.00 | ||||
Year 4 |
8,750 | $61.00 annually | $44,479.17 | $533,750.00 | ||||
Year 5 |
8,750 | $62.00 annually | $45,208.33 | $542,500.00 |
(b) Tenant shall pay Landlord as Additional Rent with respect to the Additional Premises at times specified in the Lease (i) any increase in Taxes payable with respect to the Project, based upon Tenants Pro Rata Share with respect to the Additional Premises, in excess of Taxes for the fiscal year 2015 (i.e., July 1, 2014 through June 30, 2015), (ii) any increase in Operating Expenses, based upon Tenants Pro Rata Share with respect to the Additional Premises, in excess of Operating Expenses for the calendar year 2015 and (c) any other amounts with respect to the Additional Premises that Tenant assumes or agrees to pay under the provisions of the Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenants part to comply with the agreements, terms, covenants and conditions of the Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.
(c) Tenant shall pay for all electricity supplied to the Additional Premises, together with any fees, surcharges and taxes thereon.
8. Additional Security Deposit . Tenant shall provide Landlord with an additional security deposit relating to the Additional Premises equal to One Hundred Thousand and 00/100 Dollars ($100,000.00). Accordingly, the Security Deposit under the Lease shall be increased from Ninety-Eight Thousand One Hundred Sixty-Three and 32/100 Dollars ($98,163.32) to One Hundred Ninety-Eight Thousand One Hundred Sixty-Three and 32/100 Dollars ($198,163.32).
9. Parking . Notwithstanding anything in the Lease to the contrary, Tenant shall have a non-exclusive, irrevocable license to use Tenants Pro Rata Share of parking spaces relating to the Additional Premises in the parking facilities serving the Building (which, as of the Execution Date, is one (1) space per one thousand (1,000) square feet of Rentable Area of the Additional Premises). Tenants use of such spaces shall be in common on an unreserved basis with other tenants of the Building during the Term at a cost of Two Hundred Ten Dollars ($210.00) per
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parking space per month, which Tenant shall pay as Additional Rent (and outside of Operating Expenses) simultaneously with payments of Base Rent. All the other terms and conditions of the Lease relating to parking, including without limitation, Section 13 of the Existing Lease, shall apply to the parking spaces relating to the Additional Premises.
10. Furniture . Tenant hereby acknowledges and agrees that there may be furniture and other items of personal property (collectively, the Personal Property ) in the Additional Premises that were left behind by the tenant previously occupying the Premises ( Vacating Tenant ). Tenant acknowledges that Landlord has not and does not have an ownership interest in or right to convey the Personal Property to Tenant and Tenant shall enter into any agreements it deems necessary with Vacating Tenant to transfer ownership of the Personal Property. Further, Tenant accepts the Personal Property in its condition as is and with all faults, patent or latent, as of the date hereof, and Landlord hereby disclaims any warranties, related to the Personal Property, including, without limitation, warranties of merchantability and fitness for a particular purpose. Tenant hereby acknowledges that Landlord has not made, and does not make any representations or warranties, of any kind, express or implied, regarding the Personal Property, and Tenant waives and releases any and all claims of any kind arising from the sale or condition of the Personal Property.
11. Extension Term . The term of the Lease with respect to the Original Premises is hereby extended to be coterminous with the term for the Additional Premises. As such, the Term Expiration Date as used in the Existing Lease is hereby amended to mean the Amended Term Expiration Date. The period commencing on October 1, 2018 and ending on the Amended Term Expiration Date shall be referred to herein as the Extension Term . The term Term as used in the Lease shall refer to the original term as extended by the Extension Term.
12. Rent for Original Premises During Extension Term . During the Extension Term, Tenant shall pay to Landlord as Rent for the Original Premises, the following amounts:
(a) The Base Rent rate for the Original Premises (on a gross plus electric basis) shall be the same dollar value per square foot annually as the then-current Base Rent for the Additional Premises beginning October 1, 2018. Base Rent for the Original Premises shall be subject to upward adjustments of One Dollar ($1.00) per square foot of Rentable Area annually, which shall occur concomitantly with annual increases of Base Rent for the Additional Premises on each annual anniversary of the Additional Premises Term Commencement Date.
(b) Tenant shall continue to pay Landlord as Additional Rent with respect to the Original Premises at times specified in the Lease (i) any increase in Taxes payable with respect to the Project, based upon Tenants Pro Rata Share with respect to the Original Premises, in excess of Taxes for the Base Year (which, as defined in the Existing Lease, is calendar year 2013), (ii) any increase in Operating Expenses, based upon Tenants Pro Rata Share with respect to the Original Premises, in excess of Operating Expenses for the Base Year and (iii) any other amounts with respect to the Original Premises that Tenant assumes or agrees to pay under the provisions of the Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenants part to comply with the agreements, terms, covenants and conditions of the Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.
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(c) Tenant shall continue to pay for all electricity supplied to the Original Premises, together with any fees, surcharges and taxes thereon.
13. Condition of Premises . Tenant acknowledges that (a) it is in possession of and is fully familiar with the condition of the Original Premises and, notwithstanding anything contained in the Lease to the contrary, agrees to take the same in its condition as is as of the first day of the Extension Term, (b) it is fully familiar with the condition of the Additional Premises and, notwithstanding anything contained in the Lease to the contrary, agrees to take the same in its condition as is as of the Additional Premises Term Commencement Date, (c) Landlord shall have no obligation to alter, repair or otherwise prepare the Original Premises for Tenants continued occupancy for the Extension Term or to pay for any improvements to the Original Premises, except as may be expressly provided in the Lease and (d) Landlord shall have no obligation to alter, repair or otherwise prepare the Additional Premises for Tenants occupancy or to pay for any improvements to the Additional Premises, except with respect to the TI Allowance. Notwithstanding the foregoing, Landlord agrees that to the best of Landlords knowledge, all Building systems are or shall be in good working condition as of the Additional Premises Term Commencement Date.
14. Option to Extend Term . Section 42 of the Existing Lease is hereby amended as follows:
(a) Change all references of the American Arbitration Association or AAA to the Judicial Arbitration and Mediation Services or JAMS.
(b) Change the time period in Section 42.3 from nine (9) months to twelve (12) months.
For the avoidance of doubt, the Option shall apply to both the Additional Premises and the Original Premises.
15. Termination Option . The Termination Option granted to Tenant in Section 3.1 of the Existing Lease is hereby deleted in its entirety and of no further force or effect.
16. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, other than CB Richard Ellis ( Broker ), and agrees to reimburse, indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord, at Tenants sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent, other than Broker, employed or engaged by it or claiming to have been employed or engaged by it. Broker is entitled to a leasing commission in connection with the making of this Amendment, and Landlord shall pay such commission to Broker pursuant to a separate agreement between Landlord and Broker.
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17. No Default . Tenant represents, warrants and covenants that, to the best of Tenants knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
18. Notices . Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:
EverQuote, Inc.
210 Broadway, 3 rd Floor
Cambridge, Massachusetts 02139
Attn: David Mason, Esq.
with a copy to:
Dominic A. Lloyd
BakerHosteler LLP
303 East 17 th Avenue, Suite 1100
Denver, Colorado 80203-1264.
19. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
20. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
21. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
22. Authority . Each of Landlord and Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
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23. Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as a sealed Massachusetts instrument as of the date and year first above written.
LANDLORD :
BMR-BROADWAY LLC,
a Delaware limited liability company
By: |
/s/ William Kane |
|
Name: |
William Kane |
|
Title: |
Vice President, Leasing & Development | |
TENANT : |
||
EVERQUOTE, INC., a Delaware corporation |
||
By: |
/s/ David Mason |
|
Name: |
David Mason |
|
Title: |
General Counsel |
EXHIBIT A
ADDITIONAL PREMISES
See attached.
A-1
EXHIBIT B
ACKNOWLEDGEMENT OF ADDITIONAL PREMISES TERM COMMENCEMENT
DATE AND AMENDED TERM EXPIRATION DATE
THIS ACKNOWLEDGEMENT OF ADDITIONAL PREMISES TERM COMMENCEMENT DATE AND AMENDED TERM EXPIRATION DATE is entered into as of [ ], 20[ ], with reference to that certain Second Amendment to Lease dated as of [ ], 20[ ], (the Second Amendment ), which amends that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013 (collectively, and as the same may have been heretofore further amended, amended and restated, supplemented or otherwise modified from time to time, the Lease ), by EVERQUOTE, INC., a Delaware corporation ( Tenant formerly known as AdHarmonics, Inc.), in favor of BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.
Tenant hereby confirms the following, to the best of its knowledge:
1. Tenant accepted possession of the Additional Premises for construction of improvements or the installation of personal or other property on [ ], 20[ ], and for use in accordance with the Permitted Use on [ ], 20[ ]. Tenant first occupied the Additional Premises for the Permitted Use on [ ], 20[ ].
2. The Additional Premises are in good order, condition and repair.
3. The Tenant Improvements are Substantially Complete.
4. All conditions of the Second Amendment to be performed by Landlord as a condition to the full effectiveness of the Second Amendment have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the Additional Premises.
5. In accordance with the provisions of Section 3 of the Second Amendment, the Additional Premises Term Commencement Date is [ ], 20[ ], and, unless the Lease is terminated prior to the Term Expiration Date pursuant to its terms, the Term Expiration Date shall be December 31, 2019.
6. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except [ ]].
7. Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.
8. The obligation to pay Rent with respect to the Additional Premises is presently in effect and all Rent obligations with respect to the Additional Premises on the part of Tenant under the Lease commenced to accrue on [ ], 20[ ], with Base Rent payable on the dates and amounts set forth in the chart below:
B-1
Dates |
Square Feet of
Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual
Base Rent |
||||||||||||
[ ]/[ ]/[ ]- [ ]/[ ]/[ ] |
8,750 | $ | 58.00 annually | $ | 42,291.67 | $ | 507,500.00 | |||||||||
[ ]/[ ]/[ ]- [ ]/[ ]/[ ] |
8,750 | $ | 59.00 annually | $ | 43,020.83 | $ | 516,250.00 | |||||||||
[ ]/[ ]/[ ]- [ ]/[ ]/[ ] |
8,750 | $ | 60.00 annually | $ | 43,750.00 | $ | 525,000.00 | |||||||||
[ ]/[ ]/[ ]- [ ]/[ ]/[ ] |
8,750 | $ | 61.00 annually | $ | 44,479.17 | $ | 533,750.00 | |||||||||
[ ]/[ ]/[ ]- [ ]/[ ]/[ ] |
8,750 | $ | 62.00 annually | $ | 45,208.33 | $ | 542,500.00 |
9. Base Rent with respect to the Original Premises during the Extension Term shall payable on the dates and in amounts set forth in the chart below:
Dates |
Square Feet of
Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
[ ]/[ ]/[ ]- [ ]/[ ]/[ ] |
6,010 | $ | 61.00 annually | $ | 30,550.83 | $ | 366,610.00 | * | ||||||||
[ ]/[ ]/[ ]- [ ]/[ ]/[ ] |
6,010 | $ | 62.00 annually | $ | 31,051.67 | $ | 372,620.00 | * |
* | Note: Calculated based upon twelve (12) months. |
10. The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.
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B-2
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE (this Amendment ) is entered into as of this 24 th day of July, 2015, by and between BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ), and EVERQUOTE, INC., a Delaware corporation ( Tenant, f/k/a AdHarmonics, Inc.).
RECITALS
A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013 and that certain Second Amendment to Lease dated as of January 30, 2015 (collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the Existing Lease ), whereby Tenant leases certain premises (the Premises ) from Landlord at 210 Broadway in Cambridge, Massachusetts (the Building );
B. WHEREAS, Landlord desires to grant to Tenant, and Tenant desires to accept and assume from Landlord, a non-exclusive license to use additional space in the Common Area on the fourth (4 th ) floor of the Building; and
C. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the Lease . From and after the date hereof, the term Lease, as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.
2. Non-Exclusive License to Use IT Space .
2.1. Landlord hereby grants to Tenant, and Tenant hereby accepts and assumes from Landlord, a non-exclusive license (an IT Space License ) to use a portion (as designated by Landlord) of the additional space in the Common Area on the fourth (4 th ) floor of the Building in the location depicted in Exhibit A attached hereto (the IT Space , and such portion of the IT Space that Landlord designates for Tenant, Tenant IT Space ) solely for the purposes of installing, operating, maintaining, replacing, and removing the information technology equipment listed in Exhibit B attached hereto (collectively, the IT Equipment ), in conformity with all Applicable Laws (the IT Space Use ). For purposes of clarity, the IT Space Use shall not include any storage use or any use of the IT Space as a server room.
2.2. The IT Space License shall be non-exclusive. Tenant acknowledges that Landlord and other third parties (including other tenants in the Building) currently maintain and operate certain information technology equipment in the IT Space. In addition, Landlord reserves the right to grant an IT Space License of the IT Space to any other third party. Tenant shall use commercially reasonable efforts to avoid, shall remedy, and shall be solely responsible and liable for, any damage to or interference with any such third partys information technology equipment caused by or arising from the actions of Tenant or any of its employees, contractors, subcontractors or agents.
2.3. Landlord shall provide Tenant with one (1) key for the IT Space. Tenant shall ensure that such key is securely maintained and shall be responsible for any unauthorized use of such key. Upon demand, Tenant shall reimburse to Landlord any cost incurred by Landlord to modify the locks and keys in connection with the IT Space in order to ensure that the key to the IT Space does not unlock other space in the Building. Landlord shall have no obligation, responsibility or liability for the security of Tenants IT Equipment.
2.4. The IT Space License shall commence as of the earlier of (a) the Effective Date, and (b) the date that Tenant installs any IT Equipment in the Tenant IT Space (the IT Space License Term Commencement Date ), and shall expire as of the Term Expiration Date (the IT Space License Term ); provided, however, in the event the Lease terminates earlier than the Term Expiration Date (as provided in the Lease), this IT Space License shall terminate concurrently with such earlier termination of the Lease.
2.5. During the IT Space License Term, the IT Space Use shall be a Permitted Use under the Lease, provided that Tenants IT Space Use and surrender of the Tenant IT Space shall be subject to all of the same rights of Landlord and duties, obligations, covenants and liabilities of Tenant set forth in the Lease with respect to Tenants use, occupancy and surrender of the Premises, and any violation or breach by Tenant of such duties, obligations, covenants and liabilities with respect to the IT Space shall be a Default under the Lease to the same extent that a violation by Tenant of such duties, obligations, covenants and liabilities with respect to the Premises would be a Default under the Lease.
2.6. The IT Space License shall be appurtenant to the Lease and may not be separately Transferred to any other person or entity without Landlords prior written consent in its sole discretion, and any such purported separate Transfer of the IT Space License shall be null and void.
2.7. Tenant shall install or alter Tenants IT Equipment at its sole cost and expense, at such times and in such manner as Landlord may reasonably designate, in accordance with this Amendment and the applicable provisions of the Lease regarding Alterations, except that any installation or alteration of Tenants IT Equipment shall not qualify as a Cosmetic Alteration and shall always be subject to Landlords prior written approval, which approval shall not be unreasonably withheld. Landlord may withhold approval if the installation, operation or alteration of Tenants IT Equipment could reasonably be expected to increase the amount of IT Equipment to be located in the IT Space, use additional space in the IT Space in excess of the space used as of the IT Space License Term Commencement Date, affect the structural integrity
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of the Building, the exterior of the Building or any Building systems, or transmit vibrations or noise or cause other adverse effects to an extent not customary in first class laboratory buildings, unless Tenant implements measures that are acceptable to Landlord in its reasonable discretion. To the extent deemed reasonably necessary due to Tenants IT Space Use, Landlord (at Tenants sole cost and expense) may (but shall not be obligated to) install additional HVAC equipment to serve the IT Space. Landlord shall invoice Tenant for the cost of such work, and Tenant shall pay such costs as Additional Rent within ten (10) days after receipt of such invoice. Notwithstanding the foregoing, Tenant may, without prior consent from Landlord, replace Tenants then-existing IT Equipment (which replacement IT Equipment shall be located in substantially the same location as the previous IT Equipment) with IT Equipment of substantially the same size, capacity, and configuration; provided that, Tenant shall provide Landlord with prior notice of such work, or in the event prior notification is not reasonably possible, Tenant shall provide Landlord with notice of such work promptly after such work is performed.
2.8. Upon the expiration or earlier termination of the IT Space License Term, Tenant shall surrender the Tenant IT Space in the condition in which Tenant is required to surrender the Premises under the Lease. Without limiting the generality of the foregoing, upon the expiration or earlier termination of the IT Space License Term, Tenant shall remove its IT Equipment from the IT Space, unless Landlord elects otherwise by delivery of written notice to Tenant, and Tenant shall repair any damage to the IT Space caused by Tenants removal of the IT Equipment from the IT Space.
2.9. Tenant acknowledges and agrees that (a) Tenant has had sufficient opportunity to inspect the IT Space and is fully familiar with the condition of the IT Space, and, notwithstanding anything contained in the Lease to the contrary, Tenant agrees to take the Tenant IT Space in its condition as is as of the first day of the IT Space License Term Commencement Date, (b) Landlord has not made and does not make any representation or warranty of any kind, express or implied, with respect to the IT Space, including but not limited to any representation or warranty that the IT Space is suitable for the IT Space Use, and (c) Landlord shall have no obligation to alter, repair or otherwise prepare the IT Space for Tenants IT Space Use or to pay for any improvements to or alterations of the IT Space.
2.10. Landlord shall have the right at any time during the IT Space License Term, upon providing Tenant not less than thirty (30) days prior written notice, to provide Tenant with space elsewhere in the IT Space and to remove Tenants IT Equipment from Tenants IT Space and place Tenants IT Equipment in such relocation space. Landlord shall pay any reasonable and customary costs and expenses related thereto. Should Tenant refuse to permit Landlord to move Tenant to such new space at the end of such thirty (30) day period, Landlord shall have, in addition to all other rights and remedies allowed under the Lease, at law or in equity, the right to cancel and terminate the IT Space License upon providing written notice to Tenant within thirty (30) days after the end of such thirty (30) day period of Landlords election to so terminate. Upon providing such notice to Tenant, the IT Space License shall immediately terminate. If Landlord moves Tenant to such new space, then the IT Space License and each and all of its terms, covenants and conditions shall remain in full force and effect and be deemed applicable to such new space, and such new space shall thereafter be deemed to be Tenants IT Space , and Landlord and Tenant shall enter into an express written amendment to the Lease memorializing such change.
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3. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment and agrees to reimburse, indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord, at Tenants sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.
4. No Default . Tenant represents, warrants and covenants that, to the best of Tenants knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
5. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
6. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
7. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
8. Authority . Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
9. Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as a sealed Massachusetts instrument as of the date and year first above written.
LANDLORD :
BMR-BROADWAY LLC,
a Delaware limited liability company
By: |
/s/ William Kane |
|
Name: | William Kane | |
Title: | Senior Vice President, Boston Market Lead | |
TENANT : | ||
EVERQUOTE, INC., a Delaware corporation |
By: |
/s/ David Mason |
|
Name: |
David Mason | |
Title: |
General Counsel |
EXHIBIT A
IT SPACE
[See attached]
EXHIBIT B
IT EQUIPMENT
1. | 1 APC uninterruptible power supply |
2. | 5 Cisco Meraki MS320 network switches |
3. | Patch cables between switch ports and patch panels |
4. | 1 patch panel |
5. | 5 network patch panels, and cabling to ports on the 4 th floor |
6. | 1 fiber option patch panel, connecting 4 th floor to 3 rd floor |
7. | 2 AdTran 1238 network switches |
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (this Amendment ) is entered into as of this 20 th day of December, 2016 (the Execution Date ), by and between BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ), and EVERQUOTE, INC., a Delaware corporation ( Tenant , f/k/a AdHarmonics, Inc.).
RECITALS
A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013, by that certain Second Amendment to Lease dated as of January 30, 2015, and by that certain Third Amendment to Lease dated as of July 24, 2015 (the Third Amendment ) (collectively, and as the same may have been amended, supplemented or modified from time to time, the Existing Lease ), whereby Tenant leases certain premises (the Original Premises ) from Landlord at 210 Broadway in Cambridge, Massachusetts (the Building );
B. WHEREAS, Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord, an additional approximately two thousand seven hundred fifty-seven (2,757) rentable square feet of space located on the first (1 st ) floor of the Building (the First Floor Additional Premises ), and an additional approximately seven thousand seven hundred thirty-five (7,735) rentable square feet of space on the fourth (4 th ) floor of the Building (the Fourth Floor Additional Premises ), as shown on Exhibit A attached hereto (collectively, the Additional Premises );
C. WHEREAS, Landlord and Tenant desire to extend the Term set forth in the Existing Lease; and
D. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the Lease . From and after the date hereof, the term Lease, as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.
2. Additional Premises . Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, (a) as of the First Floor Additional Premises Term Commencement Date (as defined below), the First Floor Additional Premises, and (b) as of the Fourth Floor Additional Premises Term Commencement Date (as defined below), the Fourth Floor Additional Premises, each for use by Tenant in accordance with the Permitted Use and no other uses without Landlords prior written consent. Tenants leasing of the Additional Premises shall be upon all of the same terms and conditions of the Lease applicable to the Original Premises, except to the extent inconsistent with the provisions of this Amendment. From and after the First Floor Additional Premises Term Commencement Date, the term Premises , as used in the Lease, shall (i) mean the Original Premises plus the First Floor Additional Premises and (ii) contain approximately seventeen thousand five hundred seventeen (17,517) square feet of Rentable Area. From and after the Fourth Floor Additional Premises Term Commencement Date, the term Premises , as used in the Lease, shall (i) mean the Original Premises plus the Additional Premises and (ii) contain approximately twenty-five thousand two hundred fifty-two (25,252) square feet of Rentable Area.
3. Additional Premises Term Commencement Dates . The term with respect to the First Floor Additional Premises shall commence on the later of (i) the date Landlord delivers the First Floor Additional Premises to Tenant in the condition required under Section 8 , and (ii) February 1, 2017 (the First Floor Additional Premises Term Commencement Date ). The term with respect to the Fourth Floor Additional Premises shall commence on the later of (i) the date Landlord delivers the Fourth Floor Additional Premises to Tenant in the condition required under Section 8 , and (ii) July 1, 2017 (the Fourth Floor Additional Premises Term Commencement Date ). Tenant shall execute and deliver to Landlord written acknowledgment of (a) the First Floor Additional Premises Term Commencement Date within ten (10) business days after the date Tenant takes occupancy of the First Floor Additional Premises, in substantially the form attached as Exhibit B-l hereto, and (b) the Fourth Floor Additional Premises Term Commencement Date within ten (10) business days after the date Tenant takes occupancy of the Fourth Floor Additional Premises, in substantially the form attached as Exhibit B-2 hereto. Failure to execute and deliver either such acknowledgment, however, shall not affect the First Floor Additional Premises Term Commencement Date or Fourth Floor Additional Premises Term Commencement Date, as applicable, or Landlords or Tenants liability hereunder. Failure by Tenant to obtain validation by any governmental licensing agency of the Additional Premises required for the Permitted Use by Tenant shall not serve to extend either the First Floor Additional Premises Term Commencement Date or Fourth Floor Additional Premises Term Commencement Date.
4. Term Expiration Date . The term with respect to the entire Additional Premises shall expire on September 30, 2024. The term of the Lease with respect to the Original Premises is hereby extended to be coterminous with the term for the Additional Premises. As such, the Term Expiration Date as used in the Existing Lease is hereby amended to mean September 30, 2024. The period commencing on April 30, 2020 and ending on September 30, 2024 shall be referred to herein as the Extension Term . The term Term as used in the Lease shall refer to the term under the Existing Lease as extended by the Extension Term. Notwithstanding anything in the Existing Lease to the contrary (including without limitation Article 42 of the Existing Lease), Tenant shall have no rights to further extend the Term of the Lease beyond September 30, 2024.
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5. Rent .
(a) Base Rent for First Floor Additional Premises . Tenants obligation to pay Base Rent for the First Floor Additional Premises shall commence on the date that is three (3) months after the First Floor Additional Premises Term Commencement Date (anticipated to commence on May 1, 2017) (the First Floor Additional Premises Rent Commencement Date ). Monthly and annual installments of Base Rent for the First Floor Additional Premises (on a gross plus electric basis) shall be as set forth in the table below.
Dates |
Approximate
Square Feet of Rentable Area |
Base Rent per
Square Foot of Rentable Area |
Monthly Base
Rent |
Annual Base
Rent |
||||||||||||
First Floor Additional Premises Rent Commencement Date-4/30/2018 |
2,757 | $ | 71.00 annually | $ | 16,312.25 | $ | 195,747.00 | |||||||||
5/1/2018-4/30/2019 |
2,757 | $ | 72.00 annually | $ | 16,542.00 | $ | 198,504.00 | |||||||||
5/1/2019-4/30/2020 |
2,757 | $ | 73.00 annually | $ | 16,771.75 | $ | 201,261.00 | |||||||||
5/1/2020-4/30/2021 |
2,757 | $ | 74.00 annually | $ | 17,001.50 | $ | 204,018.00 | |||||||||
5/1/2021-4/30/2022 |
2,757 | $ | 75.00 annually | $ | 17,231.25 | $ | 206,775.00 | |||||||||
5/1/2022-4/30/2023 |
2,757 | $ | 76.00 annually | $ | 17,461.00 | $ | 209,532.00 | |||||||||
5/1/2023-4/30/2024 |
2,757 | $ | 77.00 annually | $ | 17,690.75 | $ | 212,289.00 | |||||||||
5/1/2024-9/30/2024 |
2,757 | $ | 78.00 annually | $ | 17,920.50 | * |
* | Not a full 12 months |
(b) Base Rent for Fourth Floor Additional Premises . Tenants obligation to pay Base Rent for the Fourth Floor Additional Premises shall commence on the date that is three (3) months after the Fourth Floor Additional Premises Term Commencement Date (anticipated to commence on October 1, 2017) (the Fourth Floor Additional Premises Rent Commencement Date ). Monthly and annual installments of Base Rent for the Fourth Floor Additional Premises (on a gross plus electric basis) shall be as set forth in the table below.
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Dates |
Approximate
Square Feet of Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
Fourth Floor Additional Premises Rent Commencement Date-4/30/2018 |
7,735 | $ | 71.00 annually | $ | 45,765.42 | * | ||||||||||
5/1/2018- 4/30/2019 |
7,735 | $ | 72.00 annually | $ | 46,410.00 | $ | 556,920.00 | |||||||||
5/1/2019- 4/30/2020 |
7,735 | $ | 73.00 annually | $ | 47,054.58 | $ | 564,655.00 | |||||||||
5/1/2020- 4/30/2021 |
7,735 | $ | 74.00 annually | $ | 47,699.17 | $ | 572,390.00 | |||||||||
5/1/2021- 4/30/2022 |
7,735 | $ | 75.00 annually | $ | 48,343.75 | $ | 580,125.00 | |||||||||
5/1/2022- 4/30/2023 |
7,735 | $ | 76.00 annually | $ | 48,988.33 | $ | 587,860.00 | |||||||||
5/1/2023- 4/30/2024 |
7,735 | $ | 77.00 annually | $ | 49,632.92 | $ | 595,595.00 | |||||||||
5/1/2024- 9/30/2024 |
7,735 | $ | 78.00 annually | $ | 50,277.50 | * |
* | Not a full 12 months |
(c) Base Rent for the Original Premises . Base Rent for the Original Premises shall be as provided under the Existing Lease through April 29, 2020. Commencing on April 30, 2020 and throughout the Extension Term, Base Rent for the Original Premises (on a gross plus electric basis) shall be as set forth in the table below.
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Dates |
Square
Feet of Rentable Area |
Base Rent per
Square Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
4/30/2020 |
14,760 | $ | 73.00 annually | * | * | * | ||||||||||
5/1/2020- 4/30/2021 |
14,760 | $ | 74.00 annually | $ | 91,020.00 | $ | 1,092,240.00 | |||||||||
5/1/2021- 4/30/2022 |
14,760 | $ | 75.00 annually | $ | 92,250.00 | $ | 1,107,000.00 | |||||||||
5/1/2022- 4/30/2023 |
14,760 | $ | 76.00 annually | $ | 93,480.00 | $ | 1,121,760.00 | |||||||||
5/1/2023- 4/30/2024 |
14,760 | $ | 77.00 annually | $ | 94,710.00 | $ | 1,136,520.00 | |||||||||
5/1/2024- 9/30/2024 |
14,760 | $ | 78.00 annually | $ | 95,940.00 | * |
* | Not a full 12 months; |
** | Not a full 30 days |
(d) Operating Expenses and Real Estate Taxes for Additional Premises . Commencing on the First Floor Additional Premises Term Commencement Date with respect to the First Floor Additional Premises, and commencing on the Fourth Floor Additional Premises Term Commencement Date with respect to the Fourth Floor Additional Premises, Tenant shall pay Landlord as Additional Rent at times specified in the Lease (i) any increase in Taxes payable with respect to the Project, based upon Tenants Pro Rata Share with respect to the First Floor Additional Premises and the Fourth Floor Additional Premises, respectively, in excess of Taxes for the calendar year 2017, (ii) any increase in Operating Expenses, based upon Tenants Pro Rata Share with respect to the First Floor Additional Premises and the Fourth Floor Additional Premises, respectively, in excess of Operating Expenses for the calendar year 2017 and (c) any other amounts with respect to the Additional Premises that Tenant assumes or agrees to pay under the provisions of the Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenants part to comply with the agreements, terms, covenants and conditions of the Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.
(e) Operating Expenses and Real Estate Taxes for Original Premises . Tenant shall continue to pay Landlord as Additional Rent with respect to the Original Premises at times specified in the Lease (i) any increase in Taxes payable with respect to the Project, based upon Tenants Pro Rata Share with respect to the Original Premises in excess of Taxes for the Base Year (which, as defined in the Existing Lease, is calendar year 2013), (ii) any increase in Operating Expenses, based upon Tenants Pro Rata Share with respect to the Original Premises, in excess of Operating Expenses for the Base Year and (c) any other amounts with respect to the Original Premises that Tenant assumes or agrees to pay under the provisions of the Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenants part to comply with the agreements, terms, covenants and conditions of the Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods. Notwithstanding the foregoing, commencing on January 1, 2020, the Base Year applicable to the Original Premises shall be changed from calendar year 2013 to calendar year 2019.
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(f) Electricity for Additional Premises . Commencing on the First Floor Additional Premises Term Commencement Date with respect to the First Floor Additional Premises, and commencing on the Fourth Floor Additional Premises Term Commencement Date with respect to the Fourth Floor Additional Premises, Tenant shall pay for all electricity supplied to the First Floor Additional Premises and Fourth Floor Additional Premises, respectively, together with any fees, surcharges and taxes thereon.
6. First Floor Additional Premises Improvements .
(a) Tenant shall cause the work (the First Floor Additional Premises Improvements ) described in the Work Letter attached hereto as Exhibit C (the Work Letter ) to be constructed in the First Floor Additional Premises at a cost to Landlord not to exceed Fifty-Five Thousand One Hundred Forty and 00/100 Dollars ($55,140.00) (based upon Twenty and 00/100 Dollars ($20.00) per square foot of Rentable Area of the First Floor Additional Premises) (the First Floor TI Allowance ) plus, if properly requested by Tenant pursuant to Section 6(c), One Hundred Fifty-Four Thousand Seven Hundred and 00/100 Dollars ($154,700.00) (based upon Twenty and 00/100 Dollars ($20.00) per square foot of Rentable Area of the Fourth Floor Additional Premises) (the Fourth Floor TI Allowance ) for work to be constructed in the Fourth Floor Additional Premises (the Fourth Floor Additional Premises Improvements , together with the First Floor Additional Premises Improvement, the Additional Premises Improvements ), for a total of Two Hundred Nine Thousand Eight Hundred Forty and 00/100 Dollars ($209,840.00) (based upon Twenty and 00/100 Dollars ($20.00) per square foot of Rentable Area of the Additional Premises). The First Floor TI Allowance, together with the Fourth Floor TI Allowance (if properly requested by Tenant pursuant to Section 6(c)) , shall be referred to herein as the TI Allowance . The TI Allowance may be applied to the costs of (i) construction, (ii) Landlords actual third party out of pocket costs of project review (not to exceed Two Thousand and 00/100 Dollars ($2,000.00) for the First Floor Additional Premises and Five Thousand and 00/100 Dollars ($5,000.00) for the Fourth Floor Additional Premises), (iii) commissioning of mechanical, electrical and plumbing systems by a licensed, qualified commissioning agent hired by Tenant, and review of such partys commissioning report by a licensed, qualified commissioning agent hired by Landlord, (iv) space planning, architect, engineering and other related services performed by third parties unaffiliated with Tenant, (v) building permits and other taxes, fees, charges and levies by Governmental Authorities for permits or for inspections of the Additional Premises Improvements, (vi) costs and expenses for labor, material, equipment and fixtures, and (vii) subject to the limits set forth in the last sentence of this Section 6(a) , soft costs for data/telecom cabling, signage, relocation expenses and furniture, fixtures and equipment (collectively, the Soft Costs ). Notwithstanding the foregoing or anything contained herein or in the Lease to the contrary, except for the reimbursement of Landlords actual third party out of pocket costs of project review described in subpart (ii) above, the TI Allowance will not be applied to, and Tenant will not be charged, any Landlord supervisory, management or review fees in connection with the construction of the Additional Premises Improvements. In no event shall the TI Allowance be used for (A) the cost of work that is not authorized by the Approved Plans (as defined in the Work Letter) or otherwise approved in writing by Landlord,
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(B) payments to Tenant or any affiliates of Tenant, (C) except as provided herein, the purchase of any furniture, personal property or other non-building system equipment, (D) costs resulting from any default by Tenant of its obligations under this Lease or (E) costs that are recoverable by Tenant from a third party (e.g., insurers, warrantors, or tortfeasors). Notwithstanding anything set forth herein to the contrary, Tenant may apply up to Eight Thousand Two Hundred Seven and 00/100 Dollars ($8,271.00) of the First Floor TI Allowance and up to Twenty-Three Thousand Two Hundred Five and 00/100 Dollars ($23,205.00) of the Fourth Floor TI Allowance (based upon Four and 50/100 Dollars ($4.50) per square foot of Rentable Area of the First Floor Additional Premises and the Fourth Floor Additional Premises), respectively, towards the Soft Costs identified above.
(b) Tenant shall have until (i) February 1, 2018 (the First Floor TI Deadline ), to expend the unused portion of the First Floor TI Allowance and (ii) July 1, 2018 (the Fourth Floor TI Deadline ), to expend the unused portion of the Fourth Floor TI Allowance (to the extent requested by Tenant under Section 6(c) hereof), after which date Landlords obligation to fund such costs shall expire. Base Rent shall be increased to include the amount of the Fourth Floor TI Allowance disbursed by Landlord in accordance with this Lease amortized over the period commencing on October 1, 2017 and ending on September 30, 2024 at a rate of eight percent (8%) annually. The amount by which Base Rent shall be increased shall be determined (and Base Rent shall be increased accordingly) as of the Fourth Floor Additional Premises Rent Commencement Date and, if such determination does not reflect use by Tenant of all of the Fourth Floor TI Allowance, shall be determined again as of the Fourth Floor TI Deadline, with Tenant paying (on the next succeeding day that Base Rent is due under this Lease (the TI True-Up Date )) any underpayment of the further adjusted Base Rent for the period beginning on the Fourth Floor Additional Premises Rent Commencement Date and ending on the TI True-Up Date.
(c) Landlord shall not be obligated to expend any portion of the Fourth Floor TI Allowance until Landlord shall have received from Tenant a letter in the form attached as Exhibit D hereto executed by an authorized officer of Tenant. In no event shall any unused TI Allowance entitle Tenant to a credit against Rent payable under this Lease. The term Substantially Complete or Substantial Completion means that the First Floor Additional Premises Improvements, or the Fourth Floor Additional Premises Improvements, as applicable, are substantially complete in accordance with the Approved Plans (as defined in the Work Letter), except for minor punch list items.
(d) Prior to entering upon the Additional Premises, Tenant shall furnish to Landlord evidence reasonably satisfactory to Landlord that insurance coverages required of Tenant under the provisions o f Article 23 of the Existing Lease are in effect, and such entry shall be subject to all the terms and conditions of the Lease.
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7. Pro Rata Shares .
(a) Effective as of the First Floor Additional Premises Term Commencement Date, the table in Section 2.2 of the Existing Lease shall be deleted and replaced with the following table:
Definition or Provision |
Means the Following (As of the First
Floor Additional Premises Term Commencement Date) |
|||
Approximate Rentable Area of Premises |
17,517 square feet | |||
Approximate Rentable Area of Project |
64,812 square feet | |||
Tenants Pro Rata Share of Project |
27.03 | % |
(b) Effective as of the Fourth Floor Additional Premises Term Commencement Date, the table in Section 2.2 of the Existing Lease shall be deleted and replaced with the following table:
Definition or Provision |
Means the Following (As of the Fourth
Floor Additional Premises Term Commencement Date) |
|||
Approximate Rentable Area of Premises |
25,252 square feet | |||
Approximate Rentable Area of Project |
64,812 square feet | |||
Tenants Pro Rata Share of Project |
38.96 | % |
8. Condition of Premises . Tenant acknowledges that (a) it is in possession of and is fully familiar with the condition of the Original Premises and, notwithstanding anything contained in the Lease to the contrary, agrees to take the same in its condition as is as of the first day of the Extension Term, (b) agrees to take the Additional Premises in its condition as is as of the First Floor Additional Premises Term Commencement Date and the Fourth Floor Additional Premises Term Commencement Date, as applicable, except that it shall be vacant of occupants, (c) Landlord shall have no obligation to alter, repair or otherwise prepare the Original Premises for Tenants continued occupancy for the Extension Term or to pay for any improvements to the Original Premises, except as may be expressly provided in the Lease, and (d) Landlord shall have no obligation to alter, repair or otherwise prepare the Additional Premises for Tenants occupancy or to pay for any improvements to the Additional Premises, except with respect to the First Floor TI Allowance, or if elected, the Fourth Floor TI Allowance. Landlord hereby acknowledges that Tenant has no obligation to remove or restore any alteration existing in the Premises as of the Execution Date, other than such obligations set forth in the Third Amendment with respect to the IT Space and as may be required under Section 18.2 of the Existing Lease with respect to telephone and data systems, wiring and equipment.
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9. Additional Security Deposit . On or before the Execution Date, Tenant shall deposit with Landlord an additional security deposit relating to the Additional Premises equal to One Hundred Eighty-Six Thousand Two Hundred Thirty-One and 00/100 Dollars ($186,231.00) (the Additional Security Deposit ). Section 2.6 of the Existing Lease shall be amended to replace $198,163.32 with $384,394.32.
10. Parking . Notwithstanding anything in the Lease to the contrary, Tenant shall have a non-exclusive, irrevocable license to use Tenants Pro Rata Share of parking spaces relating to the Additional Premises in the parking facilities serving the Building (which, as of the Execution Date, is one (1) space per one thousand (1,000) square feet of Rentable Area of the Additional Premises). For clarity, commencing on the First Floor Additional Premises Term Commencement Date, Tenant shall be entitled to use an additional three (3) parking spaces, and commencing on the Fourth Floor Additional Premises Term Commencement Date, Tenant shall be entitled to use a further additional eight (8) spaces. Tenants use of such space shall be in common on an unreserved basis with other tenants of the Building during the Term at a cost of Two Hundred Seventy-Five Dollars ($275.00), per parking space per month, and is subject to periodic market adjustments, which Tenant shall pay as Additional Rent (and outside of Operating Expenses) simultaneously with payments of Base Rent. For clarity, Tenants obligation to pay for the spaces described in this Section 10 shall commence on the First Floor Additional Premises Term Commencement Date and on the Fourth Floor Additional Premises Term Commencement Date, as applicable. All the other terms and conditions of the Lease relating to parking, including without limitation, Section 13 of the Existing Lease, shall apply to the parking spaces relating to the Additional Premises.
11. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, other than CBRE/New England ( Broker ), and agrees to reimburse, indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord, at Tenants sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent, other than Broker, employed or engaged by it or claiming to have been employed or engaged by it. Broker is entitled to a leasing commission in connection with the making of this Amendment, and Landlord shall pay such commission to Broker pursuant to a separate agreement between Landlord and Broker.
12. No Default . Each party represents, warrants and covenants that, to the best of such partys knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
9
13. Notices . Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:
Everquote, Inc.
210 Broadway
3rd Floor
Cambridge, Massachusetts 02139
Attention: David Mason, Esq.
14. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
15. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
16. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
17. Authority . Each party guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
18. Counterparts: Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
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10
IN WITNESS WHEREOF,. Landlord and Tenant have executed this Amendment as a sealed Massachusetts instrument as of the date and year first above written.
LANDLORD:
BMR-BROADWAY LLC,
a Delaware limited liability company
By: |
/s/ William Kane |
Name: | William Kane | |
Title: | Senior Vice President East Coast Leasing |
TENANT : |
EVERQUOTE, INC., a Delaware corporation |
By: |
/s/ David Mason |
|
Name: |
David Mason |
|
Title: |
General Counsel |
EXHIBIT A
ADDITIONAL PREMISES
See attached.
EXHIBIT B-1
ACKNOWLEDGEMENT OF FIRST FLOOR ADDITIONAL PREMISES TERM
COMMENCEMENT DATE AND AMENDED TERM EXPIRATION DATE
THIS ACKNOWLEDGEMENT OF FIRST FLOOR ADDITIONAL PREMISES TERM COMMENCEMENT DATE AND AMENDED TERM EXPIRATION DATE is entered into as of [ ], 20[ ], with reference to that certain Fourth Amendment to Lease dated as of [ ], 2016 (the Fourth Amendment ), which amends that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013, that certain Second Amendment to Lease dated as of January 30, 2015, and that certain Third Amendment to Lease dated as of July 24, 2015 (collectively, and as the same may have been heretofore further amended, amended and restated, supplemented or otherwise modified from time to time, the Lease ), by EVERQUOTE, INC., a Delaware corporation ( Tenant , formerly known as AdHarmonics, Inc.), in favor of BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.
Tenant hereby confirms the following:
1. Tenant accepted possession of the First Floor Additional Premises for construction of improvements or the installation of personal or other property on [ ], 20[ ], and for use in accordance with the Permitted Use on [ ], 20[ ]. Tenant first occupied the First
Floor Additional Premises for the Permitted Use on [ ], 20[ ].
2. The First Floor Additional Premises are in good order, condition and repair.
3. All conditions of the Fourth Amendment to be performed by Landlord as a condition to the full effectiveness of the Fourth Amendment with respect to the First Floor Additional Premises have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the First Floor Additional Premises.
4. In accordance with the provisions of Section 3 of the Fourth Amendment, the First Floor Additional Premises Term Commencement Date is [February 1, 2017], and, unless the Lease is terminated prior to the Term Expiration Date pursuant to its terms, the Term Expiration Date shall be September 30, 2024.
5. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except [ ].
6. Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.
7. The obligation to pay Rent with respect to the First Floor Additional Premises is presently in effect and all Rent obligations with respect to the First Floor Additional Premises on the part of Tenant under the Lease commenced to accrue on [May 1, 2017], with Base Rent payable on the dates and amounts set forth in the chart below:
Dates |
Approximate
Square Feet of Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
5/1/2017- 4/30/2018 |
2,757 | $ | 71.00 annually | $ | 16,312.25 | $ | 195,747.00 | |||||||||
5/1/2018- 4/30/2019 |
2,757 | $ | 72.00 annually | $ | 16,542.00 | $ | 198,504.00 | |||||||||
5/1/2019- 4/30/2020 |
2,757 | $ | 73.00 annually | $ | 16,771.75 | $ | 201,261.00 | |||||||||
5/1/2020- 4/30/2021 |
2,757 | $ | 74.00 annually | $ | 17,001.50 | $ | 204,018.00 | |||||||||
5/1/2021- 4/30/2022 |
2,757 | $ | 75.00 annually | $ | 17,231.25 | $ | 206,775.00 | |||||||||
5/1/2022- 4/30/2023 |
2,757 | $ | 76.00 annually | $ | 17,461.00 | $ | 209,532.00 | |||||||||
5/1/2023- 4/30/2024 |
2,757 | $ | 77.00 annually | $ | 17,690.75 | $ | 212,289.00 | |||||||||
5/1/2024- 9/30/2024 |
2,757 | $ | 78.00 annually | $ | 17,920.50 | * |
* | Not a full 12 months |
8. Base Rent with respect to the Original Premises during the Extension Term shall be payable on the dates and in amounts set forth in the chart below:
Dates |
Square Feet of
Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
4/30/2020 |
14,760 | $ | 73.00 annually | * | * | * | ||||||||||
5/1/2020- 4/30/2021 |
14,760 | $ | 74.00 annually | $ | 91,020.00 | $ | 1,092,240.00 | |||||||||
5/1/2021- 4/30/2022 |
14,760 | $ | 75.00 annually | $ | 92,250.00 | $ | 1,107,000.00 | |||||||||
5/1/2022- 4/30/2023 |
14,760 | $ | 76.00 annually | $ | 93,480.00 | $ | 1,121,760.00 | |||||||||
5/1/2023- 4/30/2024 |
14,760 | $ | 77.00 annually | $ | 94,710.00 | $ | 1,136,520.00 | |||||||||
5/1/2024- 9/30/2024 |
14,760 | $ | 78.00 annually | $ | 95,940.00 | * |
* | Not a full 12 months; |
** | Not a full 30 days |
9. The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.
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IN WITNESS WHEREOF, Tenant has executed this Acknowledgment of First Floor Additional Premises Term Commencement Date and Amended Term Expiration Date as of the date first written above.
TENANT:
EVERQUOTE, INC.,
a Delaware corporation
By: |
|
Name: |
|
|
Title: |
|
EXHIBIT B-2
ACKNOWLEDGEMENT OF FOURTH FLOOR ADDITIONAL PREMISES TERM
COMMENCEMENT DATE AND AMENDED TERM EXPIRATION DATE
THIS ACKNOWLEDGEMENT OF FOURTH FLOOR ADDITIONAL PREMISES TERM COMMENCEMENT DATE AND AMENDED TERM EXPIRATION DATE is entered into as of [ ], 20[ ], with reference to that certain Fourth Amendment to Lease dated as of [ ], 2016 (the Fourth Amendment ), which amends that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013, that certain Second Amendment to Lease dated as of January 30, 2015, and that certain Third Amendment to Lease dated as of July 24, 2015 (collectively, and as the same may have been heretofore further amended, amended and restated, supplemented or otherwise modified from time to time, the Lease ), by EVERQUOTE, INC., a Delaware corporation ( Tenant , formerly known as AdHarmonics, Inc.), in favor of BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.
Tenant hereby confirms the following:
1. | Tenant accepted possession of the Fourth Floor Additional Premises for construction of improvements or the installation of personal or other property on [ ], 20[ ], and for use in accordance with the Permitted Use on [ ], 20[ ]. Tenant first occupied the Fourth Floor Additional Premises for the Permitted Use on [ ], 20[ ].] |
2. | The Fourth Floor Additional Premises are in good order, condition and repair. |
3. | All conditions of the Fourth Amendment to be performed by Landlord as a condition to the full effectiveness of the Fourth Amendment with respect to the Additional Premises have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the Additional Premises. |
4. | In accordance with the provisions of Section 3 of the Fourth Amendment, the Fourth Floor Additional Premises Term Commencement Date is [July 1, 2017], and, unless the Lease is terminated prior to the Term Expiration Date pursuant to its terms, the Term Expiration Date shall be September 30, 2024. |
5. | The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except [ ]]. |
6. | Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant. |
7. | The obligation to pay Rent with respect to the Fourth Floor Additional Premises is presently in effect and all Rent obligations with respect to the Fourth Floor Additional Premises on the part of Tenant under the Lease commenced to accrue on [October 1, 2017], with Base Rent payable on the dates and amounts set forth in the chart below: |
Dates |
Approximate
Square Feet of Rentable Area |
Base Rent per Square
Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||||
10/1/2017- 4/30/2018 |
7,735 |
$
|
71.00
annually |
|
$ | 45,765.42 | * | |||||||||
5/1/2018- 4/30/2019 |
7,735 |
$
|
72.00
annually |
|
$ | 46,410.00 | $ | 556,920.00 | ||||||||
5/1/2019- 4/30/2020 |
7,735 |
$
|
73.00
annually |
|
$ | 47,054.58 | $ | 564,655.00 | ||||||||
5/1/2020- 4/30/2021 |
7,735 |
$
|
74.00
annually |
|
$ | 47,699.17 | $ | 572,390.00 | ||||||||
5/1/2021- 4/30/2022 |
7,735 |
$
|
75.00
annually |
|
$ | 48,343.75 | $ | 580,125.00 | ||||||||
5/1/2022- 4/30/2023 |
7,735 |
$
|
76.00
annually |
|
$ | 48,988.33 | $ | 587,860.00 | ||||||||
5/1/2023- 4/30/2024 |
7,735 |
$
|
77.00
annually |
|
$ | 49,632.92 | $ | 595,595.00 | ||||||||
5/1/2024- 9/30/2024 |
7,735 |
$
|
78.00
annually |
|
$ | 50,277.50 | * |
* | Not a full 12 months |
8. | The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof. |
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IN WITNESS WHEREOF, Tenant has executed this Acknowledgment of Fourth Floor Additional Premises Term Commencement Date and Amended Term Expiration Date as of the date first written above.
TENANT:
EVERQUOTE, INC.,
a Delaware corporation
By: |
|
Name: |
|
|
Title: |
|
EXHIBIT C
WORK LETTER
This Work Letter (this Work Letter ) is made and entered into as of the 20 th day of December, 2016, by and between BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ), and EVERQUOTE, INC., a Delaware corporation ( Tenant , formerly known as AdHarmonics, Inc.), and is attached to and made a part of that certain Fourth Amendment to Lease dated even of the date herewith (the Fourth Amendment ), which amends that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013, that certain Second Amendment to Lease dated as of January 30, 2015, and that certain Third Amendment to Lease dated as of July 24, 2015 (collectively, and as the same may have been heretofore further amended, amended and restated, supplemented or otherwise modified from time to time, the Lease ), by and between Landlord and Tenant for the Premises located at 210 Broadway in Cambridge, Massachusetts. All capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease.
1. General Requirements .
1.1. Authorized Representatives .
(a) Landlord designates, as Landlords authorized representative ( Landlords Authorized Representative ), (i) Edward McDonald as the person authorized to initial plans, drawings, approvals and to sign change orders pursuant to this Work Letter and (ii) an officer of Landlord as the person authorized to sign any amendments to this Work Letter or the Lease. Tenant shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by the appropriate Landlords Authorized Representative. Landlord may change either Landlords Authorized Representative upon one (1) business days prior written notice to Tenant.
(b) Tenant designates David Mason ( Tenants Authorized Representative ) as the person authorized to initial and sign all plans, drawings, change orders and approvals pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by Tenants Authorized Representative. Tenant may change Tenants Authorized Representative upon one (1) business days prior written notice to Landlord.
1.2. Schedule . The schedule for design and development of the Additional Premises Improvements, including the time periods for preparation and review of construction documents, approvals and performance, shall be in accordance with a schedule to be prepared by Tenant (the Schedule ). Tenant shall prepare the Schedule so that it is a reasonable schedule for the completion of the Additional Premises Improvements. As soon as the Schedule is completed, Tenant shall deliver the same to Landlord for Landlords approval, which approval shall not be unreasonably withheld, conditioned or delayed. Such Schedule shall be approved or disapproved by Landlord within seven (7) business days after delivery to Landlord. Landlords failure to
respond in writing within the seven (7) business day period shall be deemed approval by Landlord. If Landlord disapproves the Schedule, then Landlord shall notify Tenant in writing of its objections to such Schedule, and the parties shall confer and negotiate in good faith to reach agreement on the Schedule. The Schedule shall be subject to adjustment as mutually agreed upon in writing by the parties, or as provided in this Work Letter.
1.3. Tenants Architects. Contractors and Consultants . The architect, engineering consultants, design team, general contractor and subcontractors responsible for the construction of the Additional Premises Improvements shall be selected by Tenant and approved by Landlord, which approval Landlord shall not unreasonably withhold, condition or delay. Landlord may refuse to use any architects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony. All Tenant contracts related to the Additional Premises Improvements shall provide that Tenant may assign such contracts and any warranties with respect to the Additional Premises Improvements to Landlord at any time.
2. Additional Premises Improvements . All Additional Premises Improvements shall be performed by Tenants contractor, at Tenants sole cost and expense (subject to Landlords obligations with respect to any portion of the First Floor TI Allowance, and if properly requested by Tenant, the Fourth Floor TI Allowance, and in accordance with the Approved Plans (as defined below), the Lease and this Work Letter. To the extent that the total projected cost of the Additional Premises Improvements (as projected by Landlord) exceeds the TI Allowance (such excess, the Excess TI Costs ), Tenant shall advance to Landlord any Excess TI Costs within ten (10) days after receipt of an invoice therefor, but in any case before Tenant commences the Additional Premises Improvements. Excess TI Costs shall be separately calculated with respect to the First Floor TI Allowance and the Fourth Floor TI Allowance (to the extent applicable). If the actual Excess TI Costs are less than the Excess TI Costs paid by Tenant to Landlord, Landlord shall credit Tenant with the overage paid by Tenant against Tenants Rent obligations, beginning after Landlord has completed the final accounting for the Additional Premises Improvements. If the cost of the Additional Premises Improvements (as projected by Landlord) increases over Landlords initial projection, then Landlord may notify Tenant and Tenant shall deposit any additional Excess TI Costs with Landlord in the same way that Tenant deposited the initial Excess TI Costs. If Tenant fails to pay, or is late in paying, any sum due to Landlord under this Work Letter, then Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including the right to interest and the right to assess a late charge), and for purposes of any litigation instituted with regard to such amounts the same shall be considered Rent. All material and equipment furnished by Tenant or its contractors as the Additional Premises Improvements shall be new or like new; the Additional Premises Improvements shall be performed in a first-class, workmanlike manner; and the quality of the Additional Premises Improvements shall be of a nature and character not less than the Building Standard. Tenant shall take, and shall require its contractors to take, commercially reasonable steps to protect the Additional Premises during the performance of any Additional Premises Improvements, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage. All Additional Premises Improvements shall be performed in accordance with Article 17 of the Existing Lease; provided that, notwithstanding anything in the Lease or this Work Letter to the contrary, in the event of a conflict between this Work Letter and Article 17 of the Existing Lease, the terms of this Work Letter shall govern.
2.1. Work Plans . Tenant shall prepare and submit to Landlord for approval schematics covering the Additional Premises Improvements prepared in conformity with the applicable provisions of this Work Letter (the Draft Schematic Plans ). The Draft Schematic Plans shall contain sufficient information and detail to accurately describe the proposed design to Landlord and such other information as Landlord may reasonably request. Landlord shall notify Tenant in writing within ten (10) business days after receipt of the Draft Schematic Plans whether Landlord approves or objects to the Draft Schematic Plans and of the manner, if any, in which the Draft Schematic Plans are unacceptable. Landlords failure to respond within such ten (10) business day period shall be deemed approval by Landlord. If Landlord reasonably objects to the Draft Schematic Plans, then Tenant shall revise the Draft Schematic Plans and cause Landlords objections to be remedied in the revised Draft Schematic Plans. Tenant shall then resubmit the revised Draft Schematic Plans to Landlord for approval, such approval not to be unreasonably withheld, conditioned or delayed. Landlords approval of or objection to revised Draft Schematic Plans and Tenants correction of the same shall be in accordance with this Section until Landlord has approved the Draft Schematic Plans in writing or been deemed to have approved them. In its review of any set of the Draft Schematic Plans, Landlord shall not raise objections to or request modifications of any element of the Draft Schematic Plans which were reflected or shown on or otherwise consistent with any prior progress draft of the Draft Schematic Plans and were not included in prior disapproval notices unless arising from or affected by a change in the current set of the Draft Schematic Plans. The iteration of the Draft Schematic Plans that is approved or deemed approved by Landlord without objection shall be referred to herein as the Approved Schematic Plans .
2.2. Construction Plans . Tenant shall prepare final plans and specifications for the Additional Premises Improvements that (a) are consistent with and are logical evolutions of the Approved Schematic Plans and (b) incorporate any other Tenant-requested (and Landlord-approved) Changes (as defined below). As soon as such final plans and specifications ( Construction Plans ) are completed, Tenant shall deliver the same to Landlord for Landlords approval, which approval shall not be unreasonably withheld, conditioned or delayed. Such Construction Plans shall be approved or disapproved by Landlord within seven (7) business days after delivery to Landlord. Landlords failure to respond within such seven (7) business day period shall be deemed approval by Landlord. If the Construction Plans are disapproved by Landlord, then Landlord shall notify Tenant in writing of its objections to such Construction Plans, and the parties shall confer and negotiate in good faith to reach agreement on the Construction Plans. In its review of any set of the Construction Plans, Landlord shall not raise objections to or request modifications of any element of the Construction Plans which were reflected or shown on or otherwise consistent with any prior progress draft of the Construction Plans and were not included in prior disapproval notices unless arising from or affected by a change in the current set of the Construction Plans. Promptly after the Construction Plans are approved by Landlord and Tenant, two (2) copies of such Construction Plans shall be initialed and dated by Landlord and Tenant, and Tenant shall promptly submit such Construction Plans to all appropriate Governmental Authorities for approval. The Construction Plans so approved, and all change orders specifically permitted by this Work Letter, are referred to herein as the Approved Plans .
2.3. Changes to the Additional Premises Improvements . Any changes to the Approved Plans (each, a Change ) shall be requested and instituted in accordance with the provisions of this Article 2 and shall be subject to the written approval of the non-requesting party in accordance with this Work Letter.
(a) Change Request . Either Landlord or Tenant may request Changes after Landlord approves the Approved Plans by notifying the other party thereof in writing in substantially the same form as the AIA standard change order form (a Change Request ), which Change Request shall detail the nature and extent of any requested Changes, including (i) the Change, (ii) the party required to perform the Change and (iii) any modification of the Approved Plans and the Schedule, as applicable, necessitated by the Change. If the nature of a Change requires revisions to the Approved Plans, then the requesting party shall be solely responsible for the cost and expense of such revisions and any increases in the cost of the Additional Premises Improvements as a result of such Change. Change Requests shall be signed by the requesting partys Authorized Representative.
(b) Approval of Changes . All Change Requests shall be subject to the other partys prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed. The non-requesting party shall have five (5) business days after receipt of a Change Request to notify the requesting party in writing of the non-requesting partys decision either to approve or object to the Change Request. The non-requesting partys failure to respond within such five (5) business day period shall be deemed approval by the non-requesting party.
2.4. Preparation of Estimates . Tenant shall, before proceeding with any Change, using its best efforts, prepare as soon as is reasonably practicable (but in no event more than five (5) business days after delivering a Change Request to Landlord or receipt of a Change Request) an estimate of the increased costs or savings that would result from such Change, as well as an estimate on such Changes effects on the Schedule. Landlord shall have five (5) business days after receipt of such information from Tenant to (a) in the case of a Tenant-initiated Change Request, approve or reject such Change Request in writing, or (b) in the case of a Landlord-initiated Change Request, notify Tenant in writing of Landlords decision either to proceed with or abandon the Landlord-initiated Change Request.
2.5. Quality Control Program: Coordination . Tenant shall provide Landlord with information regarding the following (together, the QCP ): (a) Tenants general contractors quality control program and (b) evidence of subsequent monitoring and action plans. The QCP shall be subject to Landlords reasonable review and approval and shall specifically address the Additional Premises Improvements. Tenant shall ensure that the QCP is regularly implemented on a scheduled basis and shall provide Landlord with reasonable prior notice and access to attend all inspections and meetings between Tenant and its general contractor. At the conclusion of the Additional Premises Improvements, Tenant shall deliver the quality control log to Landlord, which shall include all records of quality control meetings and testing and of inspections held in the field, including inspections relating to concrete, steel roofing, piping pressure testing and system commissioning.
3. Completion of Additional Premises Improvements . Tenant, at its sole cost and expense (except for the TI Allowance), shall perform and complete the Additional Premises Improvements in all respects (a) in substantial conformance with the Approved Plans, (b) otherwise in compliance with provisions of the Lease and this Work Letter and (c) in accordance with Applicable Laws, the requirements of Tenants insurance carriers, the requirements of Landlords insurance carriers (to the extent Landlord provides its insurance carriers requirements to Tenant) and the board of fire underwriters having jurisdiction over the Premises. The Additional Premises Improvements shall be deemed completed at such time as Tenant shall furnish to Landlord (t) evidence reasonably satisfactory to Landlord that (i) all Additional Premises Improvements have been completed and paid for in full (which shall be evidenced by the architects certificate of completion and the general contractors and each subcontractors and material suppliers final unconditional waivers and releases of liens, each in a form acceptable to Landlord and complying with Applicable Laws and a Certificate of Substantial Completion in the form of the American Institute of Architects document G704, executed by the project architect (to the extent applicable) and the general contractor, together with a statutory notice of substantial completion from the general contractor), (ii) all Additional Premises Improvements have been accepted by Landlord, (iii) any and all liens related to the Additional Premises Improvements have either been discharged of record (by payment, bond, order of a court of competent jurisdiction or otherwise) or waived by the party filing such lien and (iv) no security interests relating to the Additional Premises Improvements are outstanding, (u) all certifications and approvals with respect to the Additional Premises Improvements that may be required from any Governmental Authority and any board of fire underwriters or similar body for the use and occupancy of the Premises (including a certificate of occupancy for the Premises for the Permitted Use), (v) certificates of insurance required by the Lease to be purchased and maintained by Tenant, (w) an affidavit from Tenants architect certifying that all work performed in, on or about the Premises is in accordance with the Approved Plans, (x) complete as built drawing print sets, project specifications and shop drawings and electronic CADD files on disc (showing the Additional Premises Improvements as an overlay on the Building as built plans ( provided that Landlord provides the Building as-built plans provided to Tenant) of all contract documents for work performed by their architect and engineers in relation to the Additional Premises Improvements, (y) a commissioning report prepared by a licensed, qualified commissioning agent hired by Tenant and reasonably approved by Landlord for all new or affected mechanical, electrical and plumbing systems (which report Landlord may hire a licensed, qualified commissioning agent to peer review, and whose reasonable recommendations Tenants commissioning agent shall perform and incorporate into a revised report) and (z) such other close out materials as Landlord reasonably requests consistent with Landlords own requirements for its contractors, such as copies of manufacturers warranties, operation and maintenance manuals and the like.
4. Insurance .
4.1. Property Insurance . At all times during the period beginning with commencement of construction of the Additional Premises Improvements and ending with final completion of the Additional Premises Improvements, Tenant shall maintain, or cause to be maintained (in addition to the insurance required of Tenant pursuant to the Lease), property insurance coverage with respect to the general contractors and any subcontractors machinery, tools and equipment.
Coverage shall be carried on a primary basis by such general contractor or the applicable subcontractor(s). Tenant agrees to pay any deductible, and Landlord is not responsible for any deductible, for a claim under such insurance. Such property insurance shall contain an express waiver of any right of subrogation by the insurer against Landlord and the Landlord Parties, and shall name Landlord and its affiliates as loss payees as their interests may appear.
4.2. Workers Compensation Insurance . At all times during the period of construction of the Additional Premises Improvements, Tenant shall, or shall cause its contractors or subcontractors to, maintain statutory workers compensation insurance as required by Applicable Laws.
5. Liability . Except as caused by the gross negligence or willful misconduct of Landlord, Tenant assumes sole responsibility and liability for any and all injuries or the death of any persons, including Tenants contractors and subcontractors and their respective employees, agents and invitees, and for any and all damages to property caused by, resulting from or arising out of any act or omission on the part of Tenant, Tenants contractors or subcontractors, or their respective employees, agents and invitees in the prosecution of the Additional Premises Improvements. Tenant agrees to indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees (as defined in the Lease) harmless from and against all Claims due to, because of or arising out of any and all such injuries, death or damage, whether real or alleged, and Tenant and Tenants contractors and subcontractors shall assume and defend at their sole cost and expense all such Claims; provided , however , that nothing contained in this Work Letter shall be deemed to indemnify or otherwise hold Landlord harmless from or against liability caused by Landlords negligence or willful misconduct. Any deficiency in design or construction of the Additional Premises Improvements shall be solely the responsibility of Tenant, notwithstanding the fact that Landlord may have approved of the same in writing.
6. TI Allowance .
6.1. Application of TI Allowance . Landlord shall contribute, in the following order, the First Floor TI Allowance and, if properly requested by Tenant pursuant to the terms of the Lease, the Fourth Floor TI Allowance; and any Excess TI Costs with respect to each of the First Floor TI Allowance and the Fourth Floor TI Allowance advanced by Tenant to Landlord toward the costs and expenses incurred in connection with the performance of the respective Additional Premises Improvements, in accordance with Section 6 of the Fourth Amendment. If the entire TI Allowance is not applied toward or reserved for the costs of the Additional Premises Improvements, then Tenant shall not be entitled to a credit of such unused portion of the TI Allowance. If the entire Excess TI Costs advanced by Tenant to Landlord are not applied toward the costs of the Additional Premises Improvements, then Landlord shall credit Tenant with the overage paid by Tenant against Tenants Rent obligations, in accordance with Section 2 of this Work Letter. Tenant may apply the TI Allowance for the payment of construction and other costs in accordance with the terms and provisions of the Lease.
6.2. Approval of Budget for the Additional Premises Improvements . Notwithstanding anything to the contrary set forth elsewhere in this Work Letter or the Lease, Landlord shall not have any obligation to expend any portion of the TI Allowance until Landlord and Tenant shall have approved in writing the budget for the Additional Premises Improvements, which shall include separate budgets for the First Floor Additional Premises Improvements and, if applicable, the Fourth Floor Additional Premises Improvements (the Approved Budget ). Prior to Landlords reasonable approval of the Approved Budget, Tenant shall pay all of the costs and expenses incurred in connection with the Additional Premises Improvements as they become due. Landlord shall not be obligated to reimburse Tenant for costs or expenses relating to the First Floor Additional Premises Improvements and, if applicable, the Fourth Floor Additional Premises Improvements that exceed the amount of the First Floor TI Allowance, and if property requested, the Fourth Floor TI Allowance, respectively. Landlord shall not unreasonably withhold, condition or delay its approval of any budget for Additional Premises Improvements that is proposed by Tenant.
6.3. Fund Requests . Upon submission by Tenant to Landlord of (a) a statement (a Fund Request ) setting forth the total amount of the TI Allowance requested, (b) a summary of the Additional Premises Improvements performed using AIA standard form Application for Payment (G 702) executed by the general contractor and by the architect, (c) invoices from the general contractor, the architect, and any subcontractors, material suppliers and other parties requesting payment with respect to the amount of the TI Allowance then being requested, (d) in a form reasonably acceptable to Landlord and complying with Applicable Laws and (e) conditional lien releases (except with respect to the final Fund Request, which shall include unconditional lien releases) from the general contractor and each subcontractor and material supplier with respect to the Additional Premises Improvements performed that correspond to the Fund Request each in a form acceptable to Landlord and complying with Applicable Laws, then Landlord shall, within thirty (30) days following receipt by Landlord of a Fund Request and the accompanying materials required by this Section, pay to (as elected by Landlord) the applicable contractors, subcontractors and material suppliers or Tenant (for reimbursement for payments made by Tenant to such contractors, subcontractors or material suppliers either prior to Landlords approval of the Approved TI Budget or as a result of Tenants decision to pay for the Additional Premises Improvements itself and later seek reimbursement from Landlord in the form of one lump sum payment in accordance with the Lease and this Work Letter), the amount of Tenant Improvement costs set forth in such Fund Request or Landlords pari passu share thereof if Excess TI Costs exist based on the Approved Budget; provided , however, that Landlord shall not be obligated to make any payments under this Section until the budget for the Additional Premises Improvements is approved in accordance with Section 6.2 , and any Fund Request under this Section shall be subject to the payment limits set forth in Section 6.2 above and Section 6 of the Fourth Amendment.
6.4. Accrual Information . In addition to the other requirements of this Section 6 , Tenant shall, no more often than once every calendar quarter during construction of the Additional Premises Improvements, provide Landlord with a written summary of all work performed by Tenant or its agents, employees or contractors for which a Fund Request has not yet been issued to Landlord, including the following: the amount that Tenant will seek from Landlord related to such work and the dates on which such work was performed. Such information shall be provided to Landlord within ten (10) business days after Landlords request therefor.
7. Miscellaneous .
7.1. Incorporation of Lease Provisions . Sections 41.3 , 41.4 , 41.6 through 41.8 , 41.10 , and 41.12 through 41.18 of the Lease are incorporated into this Work Letter by reference, and shall apply to this Work Letter in the same way that they apply to the Lease.
7.2. General . Except as otherwise set forth in the Lease or this Work Letter shall not apply to improvements performed in any additional premises added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise; or to any portion of the Premises or any additions to the Premises in the event of a renewal or extension of the original Term, whether by any options under the Lease or otherwise, unless the Lease or any amendment or supplement to the Lease expressly provides that such additional premises are to be delivered to Tenant in the same condition as the initial Premises.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter to be effective on the date first above written.
LANDLORD :
BMR-BROADWAY LLC,
a Delaware limited liability company
By: |
/s/ William Kane |
|
Name: | William Kane | |
Title: | Senior Vice President East Coast Leasing | |
TENANT : | ||
EVERQUOTE, INC., a Delaware corporation |
||
By: |
/s/ David Mason |
|
Name: | David Mason | |
Title: | General Counsel |
EXHIBIT D
FORM OF FOURTH FLOOR TI ALLOWANCE ACCEPTANCE LETTER
[TENANT LETTERHEAD]
BMR-Broadway LLC
17190 Bernardo Center Drive
San Diego, California 92128
Attn: Legal Department
[Date]
Re: | Fourth Floor TI Allowance |
To Whom It May Concern:
This letter concerns that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013, by that certain Second Amendment to Lease dated as of January 30, 2015, by that certain Third Amendment to Lease dated as of July 24, 2015, and by that certain Fourth Amendment to Lease dated as of , 2016 (collectively, and as the same may have been amended, supplemented or modified from time to time, the Lease ), between BMR-Broadway LLC ( Landlord ) and Everquote, Inc. ( Tenant ). Capitalized terms not otherwise defined herein shall have the meanings given them in the Lease.
Tenant hereby notifies Landlord that it wishes to exercise its right to utilize the Fourth Floor TI Allowance pursuant to Section 6 of the Fourth Amendment to Lease.
If you have any questions, please do not hesitate to call [ ] at ([ ]) [ ]-[ ].
Sincerely, |
[Name] |
[Title of Authorized Signatory] |
cc: | Karen Sztraicher |
John Bonanno
Kevin Simonsen
FIFTH AMENDMENT TO LEASE
THIS FIFTH AMENDMENT TO LEASE (this Amendment) is entered into as of this 23 rd day of October, 2017 (the Execution Date ), by and between BMR-BROADWAY LLC, a Delaware limited liability company (Landlord), and EVERQUOTE, INC., f/k/a AdHarmonics, Inc., a Delaware corporation (Tenant).
RECITALS
A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013, by that certain Second Amendment to Lease dated as of January 30, 2015, by that certain Third Amendment to Lease dated as of July 24, 2015, and by that certain Fourth Amendment to Lease dated as of December 20, 2016 (the Fourth Amendment ) (collectively, and as the same may have been amended, supplemented or modified from time to time, the Existing Lease ), whereby Tenant leases certain premises (the Premises) from Landlord at 210 Broadway in Cambridge, Massachusetts (the Building);
B. WHEREAS, Tenant has requested and Landlord has agreed to extend the Fourth Floor TI Deadline set forth in the Existing Lease; and
C. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the Lease . From and after the date hereof, the term Lease, as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.
2. Fourth Floor TI Deadline . Section 6(b) of the Fourth Amendment is hereby deleted in its entirety and replaced with the following:
(b) Tenant shall have until February 1, 2018 (the First Floor TI Deadline ), to submit Fund Requests (as defined in the Work Letter attached to the Fourth Amendment) to Landlord for disbursement of the unused portion of the First Floor TI Allowance, after which date Landlords obligation to fund any such costs for which Tenant has not submitted a Fund Request to Landlord shall expire. Tenant shall have until July 1, 2020 (the Fourth Floor TI Deadline ), to submit
Fund Requests to Landlord for disbursement of the unused portion of the Fourth Floor TI Allowance (to the extent requested by Tenant under Section 6(c) of the Fourth Amendment), after which date Landlords obligation to fund any such costs for which Tenant has not submitted a Fund Request to Landlord shall expire. Base Rent shall be increased to include the amount of the Fourth Floor TI Allowance disbursed by Landlord in accordance with this Lease amortized over the period commencing on the date of Substantial Completion of the Fourth Floor Additional Premises Improvements (the Fourth Floor Additional Premises Substantial Completion Date ), and ending on September 30, 2024 at a rate of eight percent (8%) annually. The amount by which Base Rent shall be increased shall be determined (and Base Rent shall be increased accordingly) as of the Fourth Floor Additional Premises Substantial Completion Date and, if such determination does not reflect use by Tenant of all of the Fourth Floor TI Allowance, shall be determined again (and Base Rent shall be increased accordingly) as of the Fourth Floor TI Deadline, with Tenant paying (on the next succeeding day that Base Rent is due under this Lease (the TI True-Up Date )) any underpayment of the further adjusted Base Rent for the period beginning on the Fourth Floor Additional Premises Substantial Completion Date and ending on the TI True-Up Date.
3. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, other than CBRE/New England ( Broker ), and agrees to reimburse, indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord, at Tenants sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent, other than Broker, employed or engaged by it or claiming to have been employed or engaged by it. Broker is entitled to a leasing commission in connection with the making of this Amendment, and Landlord shall pay such commission to Broker pursuant to a separate agreement between Landlord and Broker.
4. No Default . Each party represents, warrants and covenants that, to the best of such partys knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
5. Notices . Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:
Everquote, Inc.
210 Broadway
3rd Floor
Cambridge, Massachusetts 02139
Attention: David Mason, Esq.
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6. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
7. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
8. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
9. Authority . Each party guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
10. Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as a sealed Massachusetts instrument as of the date and year first above written.
LANDLORD : | ||
BMR-BROADWAY LLC, a Delaware limited liability company |
||
By: |
/s/ William Kane |
|
Name: |
William Kane |
|
Title: |
Senior Vice President East Coast Leasing |
|
TENANT : | ||
EVERQUOTE, INC., a Delaware corporation | ||
By: |
/s/ David Mason |
|
Name: | David Mason | |
Title: | General Counsel |
SIXTH AMENDMENT TO LEASE
THIS FIFTH AMENDMENT TO LEASE (this Amendment ) is entered into as of this 12 th day of February, 2018 (the Execution Date ), by and between BMR-BROADWAY LLC, a Delaware limited liability company ( Landlord ), and EVERQUOTE, INC., f/k/a AdHarmonics, Inc., a Delaware corporation ( Tenant ).
RECITALS
A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of July 24, 2013, as amended by that certain First Amendment to Lease dated as of September 30, 2013, by that certain Second Amendment to Lease dated as of January 30, 2015, by that certain Third Amendment to Lease dated as of July 24, 2015, by that certain Fourth Amendment to Lease dated as of December 20, 2016 (the Fourth Amendment ), and by that certain Fifth Amendment to Lease dated as of October 23, 2017 (the Fifth Amendment ) (collectively, and as the same may have been amended, supplemented or modified from time to time, the Existing Lease ), whereby Tenant leases certain premises (the Premises ) from Landlord at 210 Broadway in Cambridge, Massachusetts (the Building );
B. WHEREAS, Tenant has requested and Landlord has agreed to extend the First Floor TI Deadline set forth in the Existing Lease; and
C. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the Lease . From and after the date hereof, the term Lease, as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.
2. First Floor TI Deadline . The first sentence of Section 6(b) of the Fourth Amendment (as amended by Section 2 of the Fifth Amendment) is hereby deleted in its entirety and replaced with the following:
(b) Tenant shall have until March 31, 2018 (the First Floor TI Deadline ), to submit Fund Requests (as defined in the Work Letter attached to the Fourth Amendment) to Landlord for disbursement of the unused portion of the First Floor TI Allowance, after which date Landlords obligation to fund any such costs for which Tenant has not submitted a Fund Request to Landlord shall expire.
3. The first sentence of Section 23.4 of the Existing Lease is hereby deleted in its entirety and replaced with the following:
23.4 The insurance required to be purchased and maintained by Tenant pursuant to this Lease shall name Landlord, BioMed Realty, L.P., BioMed Realty LLC, BRE Edison L.P., BRE Edison Holdings L.P., BRE Edison LLP, and BRE Edison Parent L.P., and their respective officers, directors, employees, agents, general partners, members, subsidiaries, affiliates and Lenders ( Landlord Parties ) as additional insureds as respects liability arising from work or operations performed by or on behalf of Tenant and Tenants use or occupancy of the Premises.
4. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, and agrees to reimburse, indemnify, save, defend (at Landlords option and with counsel reasonably acceptable to Landlord, at Tenants sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.
5. No Default . Each party represents, warrants and covenants that, to the best of such partys knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
6. Notices . Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:
Everquote, Inc.
210 Broadway
3rd Floor
Cambridge, Massachusetts 02139
Attention: David Mason, Esq.
7. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
8. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
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9. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
10. Authority . Each party guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
11. Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as a sealed Massachusetts instrument as of the date and year first above written.
LANDLORD : | ||
BMR-BROADWAY LLC, a Delaware limited liability company |
||
By: |
/s/ William Kane |
|
Name: | William Kane | |
Title: | Senior Vice President East Coast Leasing | |
TENANT : | ||
EVERQUOTE, INC., a Delaware corporation |
||
By: |
/s/ David Mason |
|
Name: | David Mason | |
Title: | General Counsel |
Exhibit 10.11
ADHARMONICS, INC.
BRIDGE BANK, NATIONAL ASSOCIATION
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of August 11, 2014, by and between BRIDGE BANK, NATIONAL ASSOCIATION (Bank) and ADHARMONICS, INC. ( Borrower).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions:
Accounts means all presently existing and hereafter arising accounts, contract rights, payment intangibles, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrowers Books relating to any of the foregoing.
Advance or Advances means a cash advance or cash advances under the Revolving Facility.
Affiliate means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Persons senior executive officers, directors, and partners.
Bank Expenses means all: reasonable costs or expenses (including reasonable attorneys fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; Collateral audit fees; and Banks reasonable attorneys fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
Borrowers Books means all of Borrowers books and records including: ledgers; records concerning Borrowers assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
Borrowing Base means an amount equal to eighty percent (80%) of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower; provided however, that the Borrowing Base may be revised from time to time by Bank following each Collateral audit or as Bank deems necessary in Banks reasonable judgment acting in good faith and upon notification thereof to Borrower to reflect contingencies and risks which may adversely affect the Eligible Accounts.
Business Day means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
Change in Control shall mean a transaction in which any person or group (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such person or group to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
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Closing Date means the date of this Agreement.
Code means the California Uniform Commercial Code.
Collateral means the property described on Exhibit A attached hereto.
Contingent Obligation means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any agreement or arrangement designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Bank in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
Copyrights means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof.
Credit Extension means each Advance, Term Advance, or any other extension of credit by Bank for the benefit of Borrower hereunder.
Daily Balance means the amount of the Obligations owed at the end of a given day.
EBITDA means Borrowers net income, plus (i) interest expense, plus (ii) income tax expense plus (iii) to the extent deducted in the calculation of net income, depreciation expense and amortization expense plus (iv) to the extent deducted in the calculation of Net Income, non-cash charges during such period, plus (v) to the extent deducted in the calculation of Net Income, fees and expenses paid in connection with this Agreement and the Credit Extensions and any amendment thereto, plus (vi) to the extent deducted in the calculation of Net Income, extraordinary or nonrecurring items during such period which have been approved in writing by Bank.
Eligible Accounts means those Accounts that arise in the ordinary course of Borrowers business that comply with all of Borrowers representations and warranties to Bank set forth in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Banks reasonable judgment acting in good faith and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, thirty-five percent (35%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional;
(e) prebillings, prepaid deposits, retention billings, or progress billings;
(f) Accounts with respect to which the account debtor is an Affiliate of Borrower;
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(g) Accounts with respect to which the account debtor does not have its principal place of business in the United States or Canada, except for Eligible Foreign Accounts;
(h) Accounts with respect to which the account debtor is the government of the United States or any department, agency, or instrumentality of the United States, except for Accounts whereby the payee has assigned its payment rights to Bank, the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. Section 3727), and such assignment otherwise complies with the Assignment of Claims Act to Banks reasonable satisfaction in the exercise of its reasonable credit judgment;
(i) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower or for deposits or other property of the account debtor held by Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;
(j) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed thirty-five percent (35%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank;
(k) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(l) Accounts the collection of which Bank reasonably determines to be doubtful.
Eligible Foreign Accounts means Accounts with respect to which the account debtor does not have its principal place of business in the United States or Canada and that Bank approves on a case-by-case basis.
Equipment means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
Event of Default has the meaning assigned in Article 8.
GAAP means generally accepted accounting principles as in effect from time to time.
Indebtedness means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.
Insolvency Proceeding means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
Intellectual Property Collateral means all of Borrowers right, title, and interest in and to the following now or hereafter owned by the Borrower: Copyrights, Trademarks and Patents; all trade secrets, all design rights, claims for damages by way of past, present and future infringement of any of the rights included above, all licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and all proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.
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Inventory means all inventory in which Borrower has or acquires any interest, including work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrowers Books relating to any of the foregoing.
Investment means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
IRC means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
Lien means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
Loan Documents means, collectively, this Agreement, any note or notes, documents or instruments executed by Borrower, and any other agreement entered into in connection with this Agreement, all as amended or extended from time to time.
Material Adverse Effect means a material adverse effect on (i) the business operations, condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents or (iii) the value or priority of Banks security interests in the Collateral.
Negotiable Collateral means all letters of credit of which Borrower is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrowers Books relating to any of the foregoing.
Obligations means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
Patents means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Periodic Payments means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.
Permitted Indebtedness means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
(b) unsecured Indebtedness owing to trade creditors in the ordinary course of business;
(c) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(d) Indebtedness secured by a lien described in clause (c) of the defined term Permitted Liens, provided (i) such Indebtedness did not, when initially incurred, exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed $100,000 in the aggregate at any given time;
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(e) Subordinated Debt, including the Investor Debt that remains outstanding after the application of proceeds from the initial Advance and Term Advance;
(f) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(g) other Indebtedness not exceeding $100,000 in the aggregate outstanding at any time; and
(h) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness specified in clause (c) above, provided that the principal amount thereof is not increased and the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investment means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poors Corporation or Moodys Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Banks money market accounts;
(c) Investments (i) in an aggregate amount not to exceed $100,000 at any time, consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries and consistent with past practices;
(d) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers, arising in the ordinary course of business; and
(e) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (e) shall not apply to Investments of Borrower in any Subsidiary.
Permitted Liens means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Banks security interests;
(c) Liens (i) upon or in any equipment which was not financed by Bank acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of the financing of, or within 60 days after acquisition of, such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;
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(e) statutory Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, and other similar Liens imposed without action of such parties arising in the ordinary course of Borrowers business or by operation of law, securing obligations which are not past due or which are being contested in good faith by appropriate proceedings and for which reserves satisfactory to Bank have been established;
(f) Liens to secure payment of workers compensation, employment insurance, old-age pensions, social security and other like obligations, incurred in the ordinary course of business;
(g) leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property granted in the ordinary course of business and consistent with past practices; and
(h) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.4 or 8.7.
Person means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
Prime Rate means the greater of three and one quarter percent (3.25%) per year, or the variable rate of interest, per annum, most recently announced by Bank, as its prime rate, whether or not such announced rate is the lowest rate available from Bank.
Responsible Officer means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.
Revolving Facility means the facility under which Borrower may request Bank to issue Advances, as specified in Section 2.1 (a) hereof.
Revolving Line means a credit extension of up to Six Million Dollars ($6,000,000).
Revolving Maturity Date means the second anniversary of the Closing Date.
Schedule means the schedule of exceptions attached hereto and approved by Bank, if any.
Subordinated Debt means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank), pursuant to a subordination agreement in form and substance reasonably satisfactory to Bank.
Subsidiary means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries (including any Affiliate), or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.
Term Advance means a cash advance under Section 2.1(b).
Term Maturity Date means February 11 , 2018.
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Trademarks means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms financial statements shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
(a) Revolving Advances.
(i) Subject to and upon the terms and conditions of this Agreement, Borrower may request Advances in an aggregate outstanding amount not to exceed the lesser of (i) the Revolving Line or (ii) the Borrowing Base. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium. Up to One Million Dollars ($1,000,000) of the initial Advance shall be used to repay outstanding amounts owing with respect to the Investor Debt.
(ii) Whenever Borrower desires an Advance, Borrower will notify Bank no later than 3:00 p.m. Pacific time, on the Business Day that the Advance is to be made. Each such notification shall be made (i) by telephone or in-person followed by written confirmation from Borrower within 24 hours, (ii) by electronic mail or facsimile transmission, or (iii) by delivering to Bank a Revolving Advance Request Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Banks discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance to the extent provided in Section 13.2. Bank will credit the amount of Advances made under this Section 2.1(a) to Borrowers deposit account.
(b) Term Advances.
(i) Subject to and upon the terms and conditions of this Agreement, on or around the Closing Date, Bank agrees to make a Term Advance to Borrower in an aggregate amount of Four Million Dollars ($4,000,000). All of the initial proceeds of the Term Advance shall be used by Borrower to repay outstanding amounts owing with respect to the Investor Debt.
(ii) Interest shall accrue from the date of the Term Advance at the rate specified in Section 2.3, and shall be payable monthly on the tenth day of each month so long as the Term Advance is outstanding. The Term Advance shall be payable in thirty six (36) equal monthly installments of principal, plus all accrued interest, beginning on February 10, 2015 and continuing on the same day of each month thereafter through the Term Maturity Date, at which time all amounts owing under this Section 2.1(b) and any other amounts owing under this Agreement shall be immediately due and payable. Term Advances, once repaid, may not be reborrowed.
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(iii) Borrower shall have the option to prepay all or a portion of the Term Advance, provided Borrower (i) provides written notice to Bank of its election to prepay such amount of the Term Advance at least five (5) days prior to such prepayment, and (ii) pays to Bank on the date of such prepayment an amount equal to the sum of (A) the outstanding principal of the Term Advance being prepaid plus accrued and unpaid interest thereon through the prepayment date, (B) a fee equal to 2% of the principal amount of the Term Advance being prepaid if such prepayment occurs on or prior to the first anniversary of the Closing Date (the Prepayment Fee), plus (C) all other Obligations that are due and payable, including Bank Expenses and interest at the default rate with respect to any past due amounts. Notwithstanding the foregoing, Borrower shall not be required to pay the Prepayment Fee if the prepayment results in Borrowers cure of its noncompliance (or anticipated noncompliance) with any one or more of the financial covenants set forth in Section 6.9 or if such prepayment is made using proceeds from a new Credit Extension or loan facility provided by Bank.
2.2 Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding Daily Balance thereof, at an annual rate equal to one half of one percent (0.50%) above the Prime Rate.
(ii) Term Advances. Except as set forth in Section 2.3(b), the Term Advance shall bear interest, on the outstanding Daily Balance thereof, at an annual rate equal to two percent (2.0%) above the Prime Rate.
(b) Late Fee; Default Rate. If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law, not in any case to be less than $25.00. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default. Bank shall provide Borrower with written notice any interest rate changes or other fees as a result of this Section 2.3(b).
(c) Payments. Interest hereunder shall be due and payable on the tenth calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrowers deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment.
(d) Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
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2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fees. (i) On the Closing Date and on the first anniversary of the Closing Date, a fee with respect to the Revolving Facility equal to $15,000, and (ii) on the Closing Date, a fee with respect to the Term Advance equal to $10,000, each of which are fully earned and nonrefundable; and
(b) Bank Expenses. Within three (3) Business Days of notice by Bank to Borrower (which shall be communicated to Borrower in writing within five (5) Business Days following the Closing Date), all Bank Expenses incurred through the Closing Date, including reasonable attorneys fees and expenses and, after the Closing Date, all Bank Expenses, including attorneys fees and expenses, as and when they are incurred by Bank.
2.6 Term. This Agreement shall become effective on the Closing Date and, subject to Section 13.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice to Borrower upon the occurrence and during the continuance of an Event of Default. Bank shall provide notice to Borrower of such actions; however failure to provide such notice to Borrower shall not limit, obviate or impair Banks rights hereunder. Notwithstanding termination, Banks Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
2.7 Extension of Maturity. Notwithstanding anything contained herein to the contrary, Bank shall have the right, in its sole and absolute discretion, to extend the Revolving Maturity Date to the tenth day of the month next following the actual Revolving Maturity Date as stated in this Agreement.
2.8 Payment Deferral. Notwithstanding anything contained herein to the contrary, in the event the Term Advance is made under this Agreement within ten days prior to the date upon which the first regularly scheduled payment of interest on the Term Advance (First Monthly Payment) would otherwise have been due as specified in Section 2.1(b), then Borrower shall make the first regularly scheduled monthly payment of interest on the same day of the calendar month immediately following the date on which the Term Advance is made, and the Term Maturity Date shall be extended for a period that is equal to the time difference between the regularly scheduled date of the First Monthly Payment as specified in Section 2.1(b) and the date on which the First Monthly Payment is actually due as a result of the application of this Section.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
(c) UCC Financing Statement in a form suitable for filing with the office of the Secretary of State (or equivalent official) of the jurisdiction of incorporation of Borrower;
(d) an intellectual property security agreement;
(e) insurance authorization letter;
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(f) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof;
(g) current financial statements of Borrower;
(h) subordination agreement (the Investor Subordination Agreement) with Link Ventures LLLP, the holder of promissory notes issued by Borrower in an aggregate original principal amount of approximately $12,000,000 (the Investor Debt); with a copy of the amended and restated promissory note;
(i) an audit of the Collateral, the results of which shall be satisfactory to Bank;
(j) a borrowing base certificate in substantially similar form as Exhibit C;
(k) a compliance certificate as of the month ended immediately prior to the Closing Date in substantially similar form as Exhibit D; and
(I) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the notification required by Section 2.1; and
(b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Advance Request Form and on the effective date of each Credit Extension as though made at and as of each such date (in each case other than representations and warranties made as of a specified date, in which case as of such date), and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension. The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Such security interest constitutes a valid, first priority security interest in the presently existing Collateral (subject only to Permitted Liens described in clause (c) of such defined term, which are permitted to have seniority over Banks Lien) and will constitute a valid, first priority security interest in Collateral acquired after the date hereof (subject only to Permitted Liens described in clause (c) of such defined term, which are permitted to have seniority over Banks Lien).
4.2 Delivery of Additional Documentation Required. Borrower shall from time to time deliver to Bank, at the request of Bank, all Negotiable Collateral (each with a value in excess of $25,000, or with a combined aggregate value in excess of $100,000) and shall execute and deliver all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue the perfection of Banks security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower from time to time may pledge to Bank specific time deposit accounts to secure specific Obligations. Borrower authorizes Bank to hold any amounts in such accounts in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Obligations are outstanding, if an Event of Default has occurred that is continuing or would exist after giving effect to such draft or transfer request.
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4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers usual business hours but no more than once a year (unless an Event of Default has occurred and is continuing), to inspect Borrowers Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrowers financial condition or the amount, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrowers business.
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrowers powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrowers Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound where the default could reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and marketable title to its property, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide existing obligations. The property and services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or to the account debtors agent for immediate and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made.
5.6 Intellectual Property Collateral. Borrower is the sole owner of the Intellectual Property Collateral, except for (a) non-exclusive licenses granted by Borrower to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) Intellectual Property licensed to Borrower and noted, to the extent material, on the Schedule. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral which is material to the Borrowers business has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party except to the extent such claim could not reasonably be expected to have a Material Adverse Effect on Borrowers business. Except as set forth in the Schedule, Borrowers rights as a licensee of intellectual property do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. Except as set forth in the Schedule, Borrower is not a party to, or bound by, any material agreement that restricts the grant by Borrower of a security interest in Borrowers rights under such agreement.
5.7 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof. All of Borrowers Inventory and Equipment is located only at the location or locations set forth on the Schedule, or such other locations in compliance with Section 7.10.
5.8 Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision (that is not covered by independent third-party insurance as to which liability has been denied by such insurance carrier) could have a Material Adverse Effect, or a material adverse effect on Borrowers interest or Banks security interest in the Collateral.
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5.9 No Material Adverse Change in Financial Statements. The most recent consolidated financial statements of the Borrower and its Subsidiaries that Bank has received from Borrower fairly present in all material respects Borrowers financial condition as of the date thereof and Borrowers consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
5.10 Solvency, Payment of Debts. Borrower is solvent and able to pay its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, and no event has occurred resulting from Borrowers failure to comply with ERISA that could result in Borrowers incurring any material liability. Borrower is not an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respect with the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could reasonably be expected to have a Material Adverse Effect.
5.12 Environmental Condition. None of Borrowers or any Subsidiarys properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrowers knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law in all material respects; to the best of Borrowers knowledge, none of Borrowers properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein, except as otherwise permitted by Section 6.6 hereof.
5.14 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents. Borrower and each Subsidiary have obtained all material consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrowers business as currently conducted.
5.16 Accounts. As of the Closing Date, all of Borrowers operating, depository and investment accounts are listed on the Schedule. On and after the 60 th day following the Closing Date, none of Borrowers nor any Subsidiarys cash or investment securities are invested except in accordance with Section 6.8 hereof.
5.17 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank as of the date such representation, warranty or certificate was made, when taken together with all such written certificate or written statements, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.
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6. AFFIRMATIVE COVENANTS.
Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its Subsidiaries corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which it is required under applicable law except when failure to maintain such qualification could not reasonably be expected to have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver the following to Bank: (a) as soon as available, but in any event within thirty (30) days after the last day of each month, a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together with aged listings of accounts receivable and accounts payable by invoice date; (b) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated balance sheet, income statement, and cash flow statement covering Borrowers consolidated operations during such period, prepared in accordance with GAAP, consistently applied, in a form reasonably acceptable to Bank and certified by a Responsible Officer, together with a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto; (c) (i) as soon as available, but in any event no later than 270 days after the end of Borrowers fiscal year 2013, audited consolidated financial statements prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of PriceWaterhouseCoopers or another independent certified public accounting firm reasonably acceptable to Bank; and (ii) as soon as available, but in any event within one hundred eighty (180) days after the end of Borrowers fiscal years 2014 and beyond, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of PriceWaterhouseCoopers or another independent certified public accounting firm reasonably acceptable to Bank; (d) as soon as available, but in any event no later than the earlier to occur of thirty (30) days following the beginning of each fiscal year or the date of approval by Borrowers board of directors, an annual operating budget and financial projections (including income statements, balance sheets and cash flow statements) for such fiscal year, presented in a monthly format, approved by Borrowers board of directors, and in a form and substance reasonably acceptable to Bank (each, a Financial Plan); (e) copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and, if applicable, all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (f) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened in writing against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Two Hundred Thousand Dollars ($200,000) or more; and (g) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time.
6.4 Audits. Bank shall have a right from time to time hereafter to audit Borrowers Accounts and appraise the Collateral at Borrowers expense, provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing.
6.5 Inventory; Returns. Borrower shall keep all Inventory in good and marketable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement as they may arise in the ordinary course of business. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than One Hundred Thousand Dollars ($100,000).
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6.6 Taxes. Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.
6.7 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrowers business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrowers business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrowers.
(b) All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lenders loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Banks request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty insurance in the amount of up to One Hundred Thousand Dollars ($100,000) toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a security interest.
6.8 Accounts. Within 60 days of the Closing Date, Borrower shall (i) maintain and shall cause each of its Subsidiaries to maintain its primary depository, operating, and investment accounts with Bank and (ii) endeavor to utilize and shall cause each of its Subsidiaries to endeavor to utilize Banks International Banking Division for any international banking services required by Borrower, including, but not limited to, foreign currency wires, hedges, swaps, foreign exchange contracts, and letters of credit. For each account that Borrower maintains outside of Bank after the 60 th day following the Closing Date, Borrower shall cause the applicable bank or financial institution at or with which any such account is maintained to execute and deliver an account control agreement or other appropriate instrument in form and substance reasonably satisfactory to Bank.
6.9 Financial Covenants .
(a) Asset Coverage Ratio. Borrower shall maintain at all times a ratio of Borrowers unrestricted cash maintained in accounts at Bank plus the amount of all Eligible Accounts (as calculated and on line #15 of the Borrowing Base Certificate) to the amount of all Obligations owing to Bank of at least 1.35 to 1.00.
(b) Performance to Plan. Borrowers quarterly EBITDA for quarters ending September 30, 2014 and December 31, 2014 shall be positive. Borrowers quarterly EBITDA for 2015 and beyond shall not negatively deviate more than 20% from its Projected Quarterly EBITDA as set forth in Borrowers most recent financial projections provided to Bank in accordance with Section 3.1 or Section 6.3(d); including the amounts set forth on Exhibit E attached hereto, with respect to the periods stated therein. Notwithstanding the foregoing, Borrowers failure to comply with the foregoing sentence shall not be deemed a breach of this section if the total quarterly negative deviation from Projected Quarterly EBITDA for the relevant fiscal quarter does not exceed $250,000.
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6.10 Intellectual Property Rights.
(a) Borrower shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any.
(b) Borrower shall (i) give Bank not less than 10 days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed, and (ii) prior to the filing of any such applications or registrations, shall execute such documents as Bank may reasonably request for Bank to maintain its perfection in such intellectual property rights to be registered by Borrower, and upon the request of Bank, shall file such documents simultaneously with the filing of any such applications or registrations. Upon filing any such applications or registrations with the United States Copyright Office, Borrower shall promptly provide Bank with (i) a copy of such applications or registrations, without the exhibits, if any, thereto, (ii) evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in such intellectual property rights, and (iii) the date of such filing.
(c) Bank may audit Borrowers Intellectual Property Collateral to confirm compliance with this Section, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrowers sole expense, any actions that Borrower is required under this Section to take but which Borrower fails to take, after 15 days notice to Borrower. Borrower shall reimburse Bank for all costs and expenses incurred in the exercise of its rights under this Section.
6.11 Notices of Commercial Tort Claims; Event of Default. Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon Borrower becoming aware of the existence of any Event of Default or event described in Section 8 which, with the giving of notice or passage of time, or both, would constitute an Event of Default, Borrower shall give written notice to Bank of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default. If Borrower shall acquire a commercial tort claim (as defined in the Code), Borrower shall promptly notify Bank in writing of the general details thereof and grant to the Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Bank.
6.12 Post-Closing Covenants. Within fourteen (14) days following the Closing Date, Borrower shall deliver to Bank, in form and substance reasonably satisfactory to Bank, a waiver/consent executed by the providers of each colocation facility used by Borrower.
6.13 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to affect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, a Transfer), or permit any of its Subsidiaries to Transfer, all or any part of its business or property with a fair market value in excess of $100,000 (but not to exceed $250,000 in the aggregate in any fiscal year), other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; (iii) Transfers of worn-out or obsolete Equipment or (iv) Transfers that constitute Permitted Liens or Permitted Investments.
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7.2 Change in Business; Change in Control or Executive Office. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto); or cease to conduct business in a manner substantially similar to that conducted by Borrower as of the Closing Date; or suffer or permit a Change in Control; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation or change its legal name; or without Banks prior written consent, change the date on which its fiscal year ends.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, provided however, only advance written notice to the Bank will be required for any action restricted by this Section 7.3 if all Obligations are paid in full in cash out of the proceeds of the initial closing of such action and such payment is listed as a condition to the consummation of such action.
7.4 Indebtedness. Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to any of its property (including without limitation, its Intellectual Property Collateral), or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its property (including without limitation, its Intellectual Property Collateral), or permit any Subsidiary to do so, other than in connection with Liens permitted by clause (c) of the definition of Permitted Lien.
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock, (iii) Borrower may repurchase the stock of former employees, officers, directors, advisors or consultants pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase and (iv) Subsidiaries may make distributions to Borrower.
7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain or invest any of its cash or investment securities with a Person other than Bank or permit any of its Subsidiaries to do so unless such Person has entered into an account control agreement with Bank in form and substance satisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for (i) transactions that are in the ordinary course of Borrowers business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms length transaction with a non-affiliated Person, (ii) cash and/or equity incentive arrangements with its employees and management in the ordinary course of Borrowers business, (iii) the issuance of stock, stock options, warrants and similar instruments and any related subscription or stockholders agreements to Borrowers stockholders, employees, directors advisors or consultants, (iv) payment of directors fees and reimbursement of expenses of any directors, or (v) transaction existing as of the date hereof and as set forth on the Schedule.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt (including the Investor Subordination Agreement), or amend any provision contained in any documentation relating to the Subordinated Debt without Banks prior written consent.
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7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or other third party unless the third party has been notified of Banks security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Banks benefit or (b) is in pledge possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any Equipment or Inventory at a location other than Borrowers location set forth in Section 10 unless the owner/landlord of such location has executed a consent/waiver in favor of Bank, in form and substance reasonably satisfactory to Bank.
7.11 Compliance. Become an investment company or be controlled by an investment company, within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Banks Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation in Sections 6.3, 6.4, 6.6, 6.7, 6.8, 6.9, 6.10(b), or 6.11 or violates any of the covenants contained in Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform or observe any other obligation under Article 6 not listed in clause (a) above or any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within fifteen days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the fifteen day period or cannot after diligent attempts by Borrower be cured within such fifteen day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made.
8.3 Material Adverse Effect. If there occurs any circumstance or circumstances that could reasonably be expected to have a Material Adverse Effect;
8.4 Attachment. If any portion of Borrowers assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrowers assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrowers assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period);
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8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within forty-five (45) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default or other failure to perform in any agreement to which Borrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) or which could reasonably be expected to have a Material Adverse Effect;
8.7 Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); or
8.8 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
9. BANKS RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand (except as expressly set forth below) do any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
(b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
(d) Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Banks determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrowers owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Banks rights or remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrowers rights, title and interest in and to any labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Banks exercise of its rights under this Section 9.1, Borrowers rights under all licenses and all franchise agreements shall inure to Banks benefit;
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(g) Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower, and any surplus will be paid to the Borrower or to other persons legally entitled thereto.
9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Banks designated officers, or employees) as Borrowers true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Banks security interest in the Accounts; (b) endorse Borrowers name on any checks or other forms of payment or security that may come into Banks possession; (c) sign Borrowers name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrowers policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral. The appointment of Bank as Borrowers attorney in fact, and each and every one of Banks rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Banks obligation to provide Credit Extensions hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence of an Event of Default, Bank may notify any Person owing funds to Borrower of Banks security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Banks trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems reasonably necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.7 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Banks Liability for Collateral. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Banks rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrowers part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
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9.7 Demand; Protest . Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES.
All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10. Advance requests may be made in the manner specified in Section 2.1(a)(ii).
If to Borrower: |
AdHarmonics, Inc. 210 Broadway, Suite 302 Cambridge, MA 02139 Attn: John B. Wagner, CFO FA X: (617) 229-7007 |
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If to Bank: |
Bridge Bank, National Association 55 Almaden Blvd. San Jose, CA 95113 Attn: Note Department FAX: (408) 282-1681 |
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and | ||
Bridge Bank, National Association 260 Franklin Street, 15th Floor Boston, MA 02110 Attn: Chris Perkins/Ben Kirtland FAX: (617)995-1320 |
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement and all other Loan Documents (except as otherwise expressly provided in any of the Loan Documents) shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
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12. JUDICIAL REFERENCE PROVISION.
12.1 In the event the jury trial waiver set forth above is not enforceable, the parties elect to proceed under the following judicial reference provision.
12.2 With the exception of the items specified in Section 12.3, below, any controversy, dispute or claim (each, a Claim ) between the parties arising out of or relating to this Agreement or any other Loan Document), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure ( CCP ), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the Court ).
12.3 The matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This reference provision does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this reference provision as provided herein.
12.4 The referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his or her representative).
12.5 The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
12.6 The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a partys failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to priority in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
12.7 Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referees power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
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12.8 The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
12.9 If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
12.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
13. GENERAL PROVISIONS.
13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Banks prior written consent, which consent may be granted or withheld in Banks sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Banks obligations, rights and benefits hereunder.
13.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation attorneys fees and expenses), except for losses (other than any incidental, indirect, special, consequential or punitive damages or losses) arising from by Banks gross negligence or willful misconduct.
13.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
13.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
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13.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan Documents can be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.
13.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
13.7 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
13.8 Confidentiality. In handling any confidential information Bank and all employees and agents of Bank, including but not limited to accountants, shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Credit Extensions so long as such prospective transferee or purchaser is subject to similar confidentiality obligations, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.
13.9 Patriot Act Notice. Bank hereby notifies Borrower that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001) (the Patriot Act), it is required to obtain, verify and record information that identifies the Borrower, which information includes names and addresses and other information that will allow Bank, as applicable, to identify the Borrower in accordance with the Patriot Act.
14. NOTICE OF FINAL AGREEMENT.
BY SIGNING THIS AGREEMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
ADHARMONICS, INC. | ||
By: |
/s/ Seth Birnbaum |
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Title: | CEO | |
BRIDGE BANK, NATIONAL ASSOCIATION | ||
By: |
/s/ Chris Perkins |
|
Title: | SVP |
EXHIBIT A
DEBTOR: | ADHARMONICS, INC. | |
SECURED PARTY: | BRIDGE BANK, NATIONAL ASSOCIATION |
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All rights, title and interest of the Borrower in all personal property of Borrower (herein referred to as Borrower or Debtor) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), commercial tort claims, deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtors books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.
EXHIBIT B
ADVANCE REQUEST FORM
(To be submitted no later than 3:00 PM to be considered for same day processing)
To: |
Bridge Bank, National Association |
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Fax: |
(408) 282-1681 |
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Date: |
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From: |
AdHarmonics, Inc. |
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Borrowers Name | ||||
Authorized Signature |
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Authorized Signers Name (please print) |
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Phone Number |
To Account # |
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Borrower hereby requests funding of an Advance in the amount of $ in accordance with the Revolving Facility as defined in the Loan and Security Agreement dated August , 2014.
Borrower hereby authorizes Lender to rely on facsimile stamp signatures and treat them as authorized by Borrower for the purpose of requesting the above advance.
All representations and warranties of Borrower stated in the Loan and Security Agreement are true, correct and complete in all material respects as of the date of this Advance Request; provided that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date.
Capitalized terms used herein and not otherwise defined have the meanings set forth in the Loan and Security Agreement.
EXHIBIT C
BORROWING BASE CERTIFICATE
BRIDGE BANK
55 Almaden Boulevard, San Jose, CA 95113
Company: ADHARMONICS, INC.
As of |
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ACCOUNTS RECEIVABLE BORROWING BASE CALCULATION: | Date: | |||||||||||||||||||||
1. |
Add: Accounts Receivable Aged Current to 30 Days | $ | 0 | |||||||||||||||||||
2. |
Add: Accounts Receivable Aged 31 to 60 Days | $ | 0 | |||||||||||||||||||
3. |
Add: Accounts Receivable Aged 61 to 90 Days | $ | 0 | |||||||||||||||||||
4. |
Add: Accounts Receivable Aged 91 Days and Over | $ | 0 | |||||||||||||||||||
5. |
GROSS ACCOUNTS RECEIVABLE | $ | 0 | |||||||||||||||||||
6. |
Less: Accounts Receivable Aged over | 90 | days | $ | 0 | |||||||||||||||||
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7. |
Less: U.S. Government Receivables (Net of > 90s) | $ | 0 | |||||||||||||||||||
8. |
Less: Foreign Receivables (Net of > 90s) | $ | 0 | |||||||||||||||||||
9. |
Less: Affiliate or Related Accounts Receivables (Net of > 90s) | $ | 0 | |||||||||||||||||||
10. |
Less: Account concentration in excess of | 35 | % | $ | 0 | |||||||||||||||||
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11. |
Less: Cross Aging | 35 | % | $ | 0 | |||||||||||||||||
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12. |
Less: Contra Accounts | $ | 0 | |||||||||||||||||||
13. |
Less: Over 90 day A/R credits | $ | 0 | |||||||||||||||||||
14. |
Add: Lines 6 through 13Total Ineligible Accounts | $ | 0 | |||||||||||||||||||
15. |
NET ELIGIBLE ACCOUNTS RECEIVABLE | $ | 0 | |||||||||||||||||||
16. |
Account Receivable Advance Rate | 80 | % | |||||||||||||||||||
17. |
ACCOUNTS RECEIVABLE BORROWING BASE | $ | 0 | |||||||||||||||||||
MAXIMUM AVAILABLE LINE OF CREDIT | $ | 6,000,000 | ||||||||||||||||||||
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18. |
Less: Outstanding Loan Balance | $ | 0 | |||||||||||||||||||
19. |
AVAILABLE FOR DRAW/NEED TO PAY | $ | 0 |
If line #19 is a negative number, this amount must be remitted to the Bank immediately to bring loan balance into compliance.
By signing this form you authorize the bank to deduct any advance amounts directly from Borrowers account(s) at Bridge Bank in the event there is an overadvance.
The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Bridge Bank, National Association.
Prepared By: |
Date: | |||||
Bank Reviewed: |
Date: |
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: | BRIDGE BANK, NATIONAL ASSOCIATION | |
FROM: | ADHARMONICS, INC. |
The undersigned authorized officer of ADHARMONICS, INC. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement), (i) Borrower is in compliance for the period ending with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct as of the date hereof (in each case other than representations and warranties made as of a specific date, in which case such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenant |
Required |
Complies | ||||
A/R & A/P Agings | Monthly within 30 days | Yes | No | |||
Borrowing Base Certificate | Monthly within 30 days | Yes | No | |||
Monthly financial statements | Monthly within 30 days | Yes | No | |||
Compliance Certificate | Monthly within 30 days | Yes | No | |||
Annual audited financial statements for 2013 | FYE within 270 days | Yes | No | |||
Annual audited financial statements 2014 and beyond | FYE within 180 days | Yes | No | |||
Annual operating budget, sales projections and operating plans approved by board of directors | Annually no later than 30 days after the beginning of each fiscal year or Board approval | Yes | No |
A/R Audit | Initial and Annual | Yes | No | |||||
Deposit balances with Bank | $ | |||||||
Deposit balance outside Bank | $ | |||||||
Financial Covenant |
Required |
Actual | Complies | |||||
Minimum Asset Coverage Ratio | 1.35:1.00 | :1.00 | Yes | No | ||||
Minimum Quarterly EBITDA for 9/30/14 and 12/31/14 | $1 | $ | Yes | No | ||||
Minimum Quarterly EBITDA for 2015 and beyond | Negative deviation not more than 20% from Plan 1 | $ | Yes | No |
Comments Regarding Exceptions: See Attached . Sincerely, |
SIGNATURE |
TITLE |
DATE |
1 | Not a breach if negative deviation is less than $250,000. |
BANK USE ONLY | ||
Received by: | ||
AUTHORIZED SIGNER | ||
Date: | ||
Verified: | ||
AUTHORIZED SIGNER | ||
Date: | ||
Compliance Status | Yes No |
EXHIBIT E
FINANCIAL PROJECTIONS
EBITDA Performance to Plan (S in 000s)
Budgeted
Mar. 31 2015 |
Budgeted
Jun. 30 2015 |
Budgeted
Sep. 30 2015 |
Budgeted
Dec. 31 2015 |
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Projected Quarterly EBITDA |
579 | 421 | 901 | $ | 870 | |||||||||||
EBITDA at Deviation of 20% |
463 | 337 | 721 | 696 | ||||||||||||
EBITDA at Deviation of $250K |
329 | 171 | 651 | 620 | ||||||||||||
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Minimum Quarterly EBITDA |
329 | 171 | 651 | 620 | ||||||||||||
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SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Section 1.1)
| Promissory notes payable to Link Ventures, LLLP dated July 17, 2014 in the amounts of $5,000,000 and $7,085,491.11 |
| Remaining $1,250,000 payable to Cogo Labs, Inc. as reflected in the Borrowers accounts payable ledger and related to invoice 102662 dated April 30, 2014 in the original amount of $1,500,000 for the purchase of a technology license |
| Amounts payable to the American Express Company as reflected in the Borrowers accounts payable ledger related to a corporate credit card facility |
| Amounts payable to vendors and employees as reflected in the Borrowers accounts payable ledger |
Permitted Investments (Section 1.1)
| Various Promissory Note and Security Agreements with executives of the Borrower totaling $2,920,047 in principal due to the Borrower as reflected on the Borrowers balance sheet. |
Permitted Liens (Section 1.1)
| Security interest granted to Link Ventures, LLLP related to Permitted Indebtedness reflect on the Schedule above. |
Inbound Licenses (Section 5.6)
| Technology licensed in the Software License Agreement for Advantage and Uber dated January 1, 2011, as amended March 15, 2014. |
Prior Names; Locations of Inventory and Equipment (Section 5.7)
| Corporate office at 210 Broadway, Cambridge MA |
| Colocation space at 1 Summer Street, Boston MA |
Litigation (Section 5.8)
A complaint has been filed against Borrower in United States District Court Southern District of Florida. The
complaint was filed by Estrella Insurance, Inc. and alleges among other things that Borrower infringed certain
trademark rights in the name Estrella. Borrower is currently engaged in settlement negotiations with the plaintiff
and no specific monetary amounts have been discussed with respect to a settlement amount.
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of November 12, 2014 by and between ADHARMONICS, INC. (the Borrower) and BRIDGE BANK, NATIONAL ASSOCIATION (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 11, 2014 by and between Borrower and Bank, as may be amended from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. COVENANT WAIVER . Borrower acknowledges that there is an existing and uncured Event of Default arising from Borrowers failure to comply with Section 6.9(b) of the Agreement for the period ended September 30, 2014 (the Covenant Defaults). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Loan and Security Agreement after the date hereof, Bank waives the Covenant Default. Bank does not waive Borrowers obligations under such sections after the date hereof, and Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents.
3. NOTICE WAIVER . Bank waives the 30 day notice requirement set forth in Section 7.2 of the Loan and Security Agreement with respect to Borrowers proposed change in its legal name from Adharmonics, Inc, to EverQuote, Inc. (the Name Change); provided that Borrower delivers to Bank (i) a certified copy of the Certificate of Amendment filed with the Delaware secretary of states office within one Business Day of the effectiveness of such filing (the Effective Date); and (ii) a corporate resolutions and incumbency certificate duly executed by Borrower within fifteen (15) days following the Effective Date. Borrower acknowledges that failure to timely comply with the foregoing shall constitute an Event of Default to which no cure period shall apply.
4. MODIFICATIONS TO LOAN AND SECURITY AGREEMENT . As of the Effective Date, all references in the Loan Documents to Adharmonics, Inc. or Borrower shall mean and refer to EverQuote, Inc..
5. COVENANTS . Borrower shall promptly notify Bank of any filings with the USPTO with respect to the Name Change, and covenants to execute and deliver to Bank such documents, instruments and agreements as Bank may reasonably request with respect to the Name Change (including an amended and restated intellectual property security agreement), and authorizes Bank to make such filings with the USPTO and to take such other actions as Lender reasonably deems appropriate with respect to the Name Change.
6. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
7. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
7. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement, and that, other than the Covenant Default, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement. The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
8. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER: REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
9. CONDITIONS PRECEDENT . As a condition to the effectiveness of this Loan and Security Modification Agreement, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) payment of a waiver fee of $3,000 plus all Bank Expenses incurred through the date of this Loan and Security Modification Agreement; and
(b) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS]
10. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
BORROWER: | BANK: | |||||
ADHARMONICS, INC. | BRIDGE BANK, NATIONAL ASSOCIATION | |||||
By: |
/s/ Seth Birnbaum |
By: |
/s/ Chris Perkins |
|||
Name: | Seth Birnbaum | Name: | Chris Perkins | |||
Title: | CEO | Title: | SVP |
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of March 25, 2015 by and between EVERQUOTE, INC., fka ADHARMONICS, INC. (Borrower) and BRIDGE BANK, NATIONAL ASSOCIATION (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 11, 2014 by and between Borrower and Bank, as may be amended from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. COVENANT WAIVER . Borrower acknowledges that there is an existing and uncured Event of Default arising from Borrowers failure to comply with Section 6.3 of the Loan and Security Agreement regarding the delivery of its 2013 audited financial statements (the Covenant Default). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Loan and Security Agreement after the date hereof, Bank waives the Covenant Default. Bank does not waive Borrowers obligations under such section after the date hereof, and Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents.
3. MODIFICATIONS TO LOAN AND SECURITY AGREEMENT . The timing requirement regarding the delivery of its audited financial statements for 2013 set forth in Section 6.3 of the Loan and Security Agreement is hereby extended to April 30, 2015.
4. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
7. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement (in each case other than representations and warranties made as of a specific date, in which case such date) and that, other
than the Covenant Default, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement. The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
8. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
9. CONDITIONS PRECEDENT . As a condition to the effectiveness of this Loan and Security Modification Agreement, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) payment of all Bank Expenses incurred through the date of this Loan and Security Modification Agreement; and
(b) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS]
10. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
BORROWER: | BANK: | |||||
EVERQUOTE, INC. | BRIDGE BANK, NATIONAL ASSOCIATION |
By: |
/s/ John B. Wagner |
By: |
/s/ Chris Perkins |
|||
Name: | John B. Wagner | Name: | Chris Perkins | |||
Title: | CFO | Title: | SVP |
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of December 15, 2015 by and between EVERQUOTE, INC., fka ADHARMONICS, INC. (Borrower) and WESTERN ALLIANCE BANK, as successor in interest to Bridge Bank, National Association (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 11, 2014 by and between Borrower and Bank, as may be amended from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. COVENANT WAIVER , Borrower acknowledges that there is an existing and uncured Event of Default arising from Borrowers failure to comply with Section 6.9(b) of the Loan and Security Agreement for the periods ended June 30, 2015 and September 30, 2015 (the Covenant Defaults). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Loan and Security Agreement after the date hereof, Bank waives the Covenant Defaults. Bank does not waive Borrowers obligations under such section after the date hereof, and Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents.
3. MODIFICATION(S) TO LOAN AND SECURITY AGREEMENT :
(1) Any reference to Bridge Bank, NA or Bridge Bank, National Association is hereby modified to read as Western Alliance Bank, an Arizona corporation, as successor in interest to Bridge Bank, National Association.
(2) The following definition in Section 1.1 is amended in its entirety to read as follows:
Prime Rate means the greater of three and one quarter percent (3.25%) or the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Bank as its Prime Rate.
4. CONSENT TO REPAYMENT OF SUBORDINATED DEBT . Bank hereby consents to the repayment of Subordinated Debt in the principal amount of $1,000,000 owing to Link Ventures LLLP, notwithstanding the provisions of Section 7.9 of the Loan and Security Agreement or in the Subordination Agreement by and between Bank and Link Ventures LLLP dated August 27, 2014.
5. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
6. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
7. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement (in each case other than representations and warranties made as of a specific date, in which case such date) and that, other than the Covenant Default, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
8. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
9. CONDITIONS PRECEDENT . As a condition to the effectiveness of this Loan and Security Modification Agreement, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) payment of an amendment and waiver fee in the amount of $2,500 plus all Bank Expenses incurred through the date of this Loan and Security Modification Agreement; and
(b) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS]
10. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
BORROWER: | BANK: | |||||
EVERQUOTE, INC. | WESTERN ALLIANCE BANK | |||||
By: |
/s/ John B. Wagner |
By: |
/s/ Chris Perkins |
|||
Name: | John B. Wagner | Name: | Chris Perkins | |||
Title: | CFO | Title: | SVP |
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of June 28, 2016 by and between EVERQUOTE, INC., fka ADHARMONICS, INC. (Borrower) and WESTERN ALLIANCE BANK, as successor in interest to Bridge Bank, National Association (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 11, 2014 by and between Borrower and Bank, as may be amended from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. COVENANT WAIVER . Borrower acknowledges that there is an existing and uncured Event of Default arising from Borrowers failure to comply with Section 6.9(b) of the Loan and Security Agreement for the period ended December 31, 2015 (the Covenant Defaults). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Loan and Security Agreement after the date hereof, Bank waives the Covenant Defaults. Bank does not waive Borrowers obligations under such section after the date hereof, and Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents.
3. CONSENT TO REPAYMENT OF SUBORDINATED DEBT . Notwithstanding the provisions of Section 7.9 of the Loan and Security Agreement, Bank hereby consents to the repayment of Subordinated Debt in the principal amount of $1,500,000 owing to Link Ventures LLLP on or around the date hereof and the cancelation of a subordinate note in the amount of up to $3,650,000 of principal and accrued interest owing to Link Ventures LLLP in favor of an amortizing note in the same amount and owing to Link Ventures LLLP to be paid on a monthly basis based on a straight line 30 month amortization schedule, as long as no Event of Default exists on the date of such payment or would exist after giving effect to such payment.
4. CONSENT TO STOCK REPURCHASE . Notwithstanding the provisions of Section 7.6 of the Loan and Security Agreement, Bank hereby consents to the repurchase of common stock from existing stockholders after the first closing of Borrowers Series B Preferred Stock financing led by Savano Capital Partners II, LP (the Series B Financing) in an aggregate amount not to exceed the amount of cash proceeds from closings of the Series B Financing, and in any event not to exceed $5,000,000 in the aggregate.
5. CONSENT TO OUTSIDE DEPOSIT ACCOUNT . Notwithstanding the provisions of Section 7.7 of the Loan and Security Agreement, Bank hereby consents that the Borrower may maintain a money market deposit account with JPMorgan Chase Bank, N.A. in an amount up to $250,000 for the purpose of securing a corporate credit card program; provided that Borrower use best efforts to obtain an account control agreement in favor of Bank with respect to such account.
6. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
7. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
7. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement (in each case other than representations and warranties made as of a specific date, in which case such date) and that, other than the Covenant Default, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement. The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
8. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
9. CONDITIONS PRECEDENT . As a condition to the effectiveness of this Loan and Security Modification Agreement, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) payment of an amendment and waiver fee in the amount of $5,000 plus all Bank Expenses incurred through the date of this Loan and Security Modification Agreement; and
(b) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS]
10. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
BORROWER: | BANK: | |||||
EVERQUOTE, INC. | WESTERN ALLIANCE BANK |
By: |
/s/ John B. Wagner |
By: |
/s/ Chris Perkins |
|||
Name: | John B. Wagner | Name: | Chris Perkins | |||
Title: | CFO | Title: | SVP |
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of August 23, 2016 by and between EVERQUOTE, INC., fka ADHARMONICS, INC. (Borrower) and WESTERN ALLIANCE BANK (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 11, 2014 by and between Borrower and Bank, as may be amended from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. DESCRIPTION OF CHANGE IN TERMS .
A. Modification(s) to Loan and Security Agreement:
(1) The following definitions in Section 1.1 are amended and restated in their entirety to read as follows:
Credit Extension means each Advance, Term Advance, Term II Advance, or any other extension of credit by Bank for the benefit of Borrower hereunder.
Prime Rate means the greater of three and one half percent (3.5%) or the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Bank as its Prime Rate.
Revolving Maturity Date means the second anniversary of the Funding Date.
(2) The following is added as a new subsection (c) to the end of Section 2.1:
(c) Term II Advance.
(i) Subject to and upon the terms and conditions of this Agreement, on or around August 23, 2016 (the Funding Date), Bank agrees to make a single cash advance to Borrower in an aggregate amount of Four Million Five Hundred Dollars ($4,500,000) (the Term II Advance). The initial proceeds of the Term II Advance shall be used by Borrower to repay in full the outstanding amounts owing to Bank with respect to the Term Advance and other existing Subordinated Debt owing to Link Ventures LLLP.
(ii) Interest shall accrue from the date of the Term II Advance at the rate specified in Section 2.3, and shall be payable monthly on the tenth day of each month so long as the Term II Advance is outstanding. The Term II Advance shall be payable in thirty six (36) equal monthly installments of principal, plus all accrued interest, beginning on September 10, 2016 and continuing on the same day of each month thereafter until the third anniversary of the Funding Date (the Term II Maturity Date), at which time all amounts owing under this Section 2.1(c) and any other amounts owing under this Agreement shall be immediately due and payable. The Term II Advance, once repaid, may not be reborrowed.
(iii) Borrower shall have the option to prepay all or a portion of the Term II Advance, provided Borrower (i) provides written notice to Bank of its election to prepay such amount of the Term II Advance at least five (5) days prior to such prepayment, and (ii) pays to Bank on the date of such prepayment an
amount equal to the sum of (A) the outstanding principal of the Term II Advance being prepaid plus accrued and unpaid interest thereon through the prepayment date, (B) a fee equal to 2% of the principal amount of the Term II Advance being prepaid if such prepayment occurs on or prior to the first anniversary of the Funding Date (the Prepayment Fee), plus (C) all other Obligations that are due and payable, including Bank Expenses and interest at the default rate with respect to any past due amounts. Notwithstanding the foregoing, Borrower shall not be required to pay the Prepayment Fee if the prepayment results in Borrowers cure of its noncompliance (or anticipated noncompliance) with any one or more of the financial covenants set forth in Section 6.9 or if such prepayment is made using proceeds from a new Credit Extension or loan facility provided by Bank.
(3) The following is added as a new clause (iii) to the end of Section 2.3(a):
(iii) Term II Advance. Except as set forth in Section 2.3(b), the Term II Advance shall bear interest, on the outstanding Daily Balance thereof, at an annual rate equal to two percent (2%) above the Prime Rate.
(4) Section 2.5(a) is amended and restated in its entirety to read as follows:
(a) Facility Fees. (i) On the Funding Date and the first anniversary of the Funding Date, a fee with respect to the Revolving Facility equal to $15,000, and (ii) on the Funding Date, a fee with respect to the Term II Advance equal to $11,250, each of which are fully earned and nonrefundable; and
(5) Section 2.8 is amended and restated in its entirety to read as follows:
2.8 Payment Deferral. Notwithstanding anything contained herein to the contrary, in the event the Term II Advance is made under this Agreement within ten days prior to the date upon which the first regularly scheduled payment of principal and interest on the Term II Advance (First Monthly Payment) would otherwise have been due as specified in Section 2.1(c), then Borrower shall make the first regularly scheduled monthly payment of principal and interest on the same day of the calendar month immediately following the date on which the Term II Advance is made, and the Term II Maturity Date shall be extended for a period that is equal to the time difference between the regularly scheduled date of the First Monthly Payment as specified in Section 2.1(c) and the date on which the First Monthly Payment is actually due as a result of the application of this Section.
(6) Section 6.9(b) is amended and restated in its entirety to read as follows:
(b) Performance to Plan. Borrowers trailing six-month EBITDA (measured on quarterly basis) shall be at least 65% of its projected EBITDA for such periods as set forth in Borrowers most recent financial projections provided to Bank in accordance with Section 6.3(d); which for the six month periods ending June 30, 2016, September 30, 2016 and December 31, 2016 are set forth below:
Six Month Period Ending: |
Projected EBITDA | Minimum EBITDA | ||||||
June 30, 2016 |
$ | 3,452,119 | $ | 2,243,877 | ||||
September 30, 2016 |
$ | 2,148,970 | $ | 1,396,830 | ||||
December 31, 2016 |
$ | 2,177,690 | $ | 1,415,499 |
(7) Exhibit D is replaced in its entirety with the Exhibit D attached hereto.
3. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
4. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
5. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement (in each case other than representations and warranties made as of a specific date, in which case such date) and that, other than the Covenant Default, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement. The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
6. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
7. CONDITIONS PRECEDENT . As a condition to the effectiveness of this Loan and Security Modification Agreement, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) evidence of Borrowers receipt of at least $5,000,000 in cash proceeds from the sale and issuance of its equity securities to Savano Capital Partners;
(b) corporate resolutions and incumbency certificate;
(c) amended and restated intellectual property security agreement;
(d) payoff letter or other evidence regarding the satisfaction of Indebtedness owing to Link Ventures LLLP;
(e) payment of the fees due under Section 2.5(a) of the Loan and Security, as amended herein, plus all Bank Expenses incurred through the date of this Loan and Security Modification Agreement; and
(f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
8. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
[SIGNATURE PAGE FOLLOWS]
IN W ITNESS W HEREOF , the parties here to have caused this Loan and Security Modification Agreement to be executed on the date first above written.
BORROWER: | BANK: | |||||
EVERQUOTE, INC. | WESTERN ALLIANCE BANK |
By: |
/s/ John B. Wagner |
By: |
/s/ Chris Perkins |
|||
Name: | John B. Wagner | Name: | Chris Perkins | |||
Title: | CFO | Title: | SVP |
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: | WESTERN ALLIANCE BANK | |
FROM: | EVERQUOTE, INC. |
The undersigned authorized officer of EVERQUOTE, INC. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement), (i) Borrower is in compliance for the period ending with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct as of the date hereof (in each case other than representations and warranties made as of a specific date, in which case such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenant |
Required |
Complies |
||
A/R & A/P Agings | Monthly within 30 days | Yes No | ||
Borrowing Base Certificate | Monthly within 30 days | Yes No | ||
Monthly financial statements | Monthly within 30 days | Yes No | ||
Compliance Certificate | Monthly within 30 days | Yes No | ||
Annual audited financial statements | FYE within 180 days | Yes No | ||
Annual operating budget, sales projections and operating plans approved by board of directors | Annually no later than 30 days after the beginning of each fiscal year or Board approval | Yes No | ||
A/R Audit | Initial and Annual | Yes No | ||
Deposit balances with Bank | $ | |||
Deposit balance outside Bank | $ |
Financial Covenant |
Required |
Actual |
Complies |
|||||
Minimum Asset Coverage Ratio |
1.35 : 1.00 | :1.00 | Yes No | |||||
Minimum Trailing 6 Month EBITDA |
At least 65% of Financial Plan | $ | Yes No | |||||
|
|
Comments Regarding Exceptions: See Attached. | BANK USE ONLY | |||
Sincerely, | Received by: |
|
||
AUTHORIZED SIGNER | ||||
Date: | ||||
|
||||
SIGNATURE | Verified: | |||
AUTHORIZED SIGNER | ||||
|
||||
TITLE | Date: | |||
|
||||
DATE | Compliance Status Yes No |
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of November 8, 2016 by and between EVERQUOTE, INC., fka ADHARMONICS, INC. (Borrower) and WESTERN ALLIANCE BANK (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 11, 2014 by and between Borrower and Bank, as may be amended from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. CONSENT TO ADDITIONAL STOCK REPURCHASE . Bank previously consented to the repurchase of up to $5,000,000 of Borrowers common stock from existing stockholders after the first closing of Borrowers Series B Preferred Stock financing led by Savano Capital Partners II, LP (the Series B Financing). Notwithstanding the provisions of Section 7.6 of the Loan and Security Agreement, Bank hereby consents to the repurchase of up to $21,100,000 in additional shares of common stock, and in an aggregate amount not to exceed $26,100,000, using additional cash proceeds from the Series B Financing,
3. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
6. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement (in each case other than representations and warranties made as of a specific date, in which case such date) and that, other than the Covenant Default, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the
Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement. The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
7. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
8. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
[SIGNATURE PAGE FOLLOWS]
IN W ITNESS W HEREOF , the parties here to have caused this Loan and Security Modification Agreement to be executed on the date first above written.
BORROWER: | BANK: | |||||
EVERQUOTE, INC. | WESTERN ALLIANCE BANK |
By: |
/s/ John B. Wagner |
By: |
/s/ Chris Perkins |
|||
Name: | John B. Wagner | Name: | Chris Perkins | |||
Title: | CFO | Title: | SVP |
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of March 7, 2017 by and between EVERQUOTE, INC., fka ADHARMONICS, INC. (Borrower) and WESTERN ALLIANCE BANK (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement by and between Borrower and Bank, dated August 11, 2014 and as may be amended from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. EVENT OF DEFAULT AND WAIVER . Borrower acknowledges that there is an existing and uncured Event of Default arising from Borrowers failure to comply with Section 6.9(b) of the Loan and Security Agreement for the period ended December 31, 2016 (the Covenant Default). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Loan and Security Agreement after the date hereof, Bank waives the Covenant Default. Bank does not waive Borrowers obligations under such section after the date hereof and as amended herein, and Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents.
3. CONSENT TO ADDITIONAL STOCK REPURCHASE . Bank previously consented to the repurchase of Borrowers common stock from existing stockholders after the first closing of Borrowers Series B Preferred Stock financing led by Savano Capital Partners II, LP (the Series B Financing). Notwithstanding the provisions of Section 7.6 of the Loan and Security Agreement, Bank hereby consents to the repurchase of Borrowers common stock in an aggregate amount not to exceed $27,400,000, using additional cash proceeds from the Series B Financing,
4. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
6. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and
Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement (in each case other than representations and warranties made as of a specific date, in which case such date) and that, other than the Covenant Default, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement. The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
7. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
8. CONDITIONS PRECEDENT . As a condition to the effectiveness of this Loan and Security Modification Agreement, Bank shall have received payment of a waiver fee in the amount of Five Thousand Dollars ($5,000) plus all Bank Expenses incurred through the date of this Loan and Security Modification Agreement.
9. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
[SIGNATURE PAGE FOLLOWS]
I N W ITNESS W HEREOF , the parties here to have caused this Loan and Security Modification Agreement to be executed on the date first above written.
BORROWER: | BANK: | |||||
EVERQUOTE, INC. | WESTERN ALLIANCE BANK |
By: |
/s/ John B. Wagner |
By: |
/s/ Chris Perkins |
|||
Name: | John B. Wagner | Name: | Chris Perkins | |||
Title: | CFO | Title: | SVP |
LOAN AND SECURITY MODIFICATION AGREEMENT
This Loan and Security Modification Agreement is entered into as of March 16, 2018 by and between EVERQUOTE, INC., formerly known as AdHarmonics, Inc. (Borrower) and WESTERN ALLIANCE BANK, as successor in interest to BridgeBank, National Association (Bank).
1. DESCRIPTION OF EXISTING INDEBTEDNESS : Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement by and between Borrower and Bank, dated August 11, 2014 and as may be amended, modified or supplemented from time to time (the Loan and Security Agreement). Capitalized terms used without definition herein shall have the meanings assigned to them in the Loan and Security Agreement.
2. EVENTS OF DEFAULT: WAIVER . Borrower acknowledges that there are existing and uncured Events of Default arising from Borrowers failure to comply with the trailing six-month EBITDA covenant set forth in Section 6.9(b) of the Loan and Security Agreement for the periods ended June 30, 2017, September 30, 2017 and December 31, 2017 (the Covenant Defaults). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Loan and Security Agreement after the date hereof, Bank waives the Covenant Defaults. Bank does not waive Borrowers obligations under such section after the date hereof and as amended hereby, and Bank does not waive any other failure by Borrower to perform its obligations under the Loan Documents.
3. REPAYMENT OF TERM II ADVANCE . On the date hereof, Borrower shall repay in full the outstanding Term II Advance, and all accrued and unpaid interest thereon.
4. MODIFICATION(S) TO LOAN AND SECURITY AGREEMENT .
A. The following definitions in Section 1.1 are added, or amended and restated in their entirety to read as follows:
Adjusted EBDA means, for any period, Borrowers earnings before depreciation and amortization expense, plus non-cash stock compensation expense, for such period, as determined in accordance with GAAP.
Revolving Line means a credit extension of up to Eleven Million Dollars ($11,000,000).
Prime Rate means the greater of four and one quarter percent (4.25%) or the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Bank as its Prime Rate.
Revolving Maturity Date means March 16, 2020.
B. Section 2.5(a)(i) is amended and restated in its entirety to read as follows:
(i) On March 16, 2018 and the first anniversary thereof, a fee with respect to the Revolving Facility equal to one quarter of one percent (0.25%) of the Revolving Line; each of which are fully earned on the due date thereof and once paid are nonrefundable;
C. Section 6.9 is amended and restated in its entirety to read as follows:
6.9 Financial Covenants.
(a) Asset Coverage Ratio. Borrower shall maintain at all times a ratio of Borrowers unrestricted cash maintained in accounts at Bank plus the amount of all Eligible Accounts (as calculated and on line #15 of the Borrowing Base Certificate) to the amount of all Obligations owing to Bank of at least 1.50 to 1.00.
D. The following is added to the end of Section 6, as a new Section 6.14:
6.14 Lockbox and Collections Account.
(a) On and after the ninetieth (90th) day following written notice by Bank to Borrower (the Lockbox Notice), but subject to subsections (b) and (c) below, all proceeds of Accounts shall be deposited into a post office box under Banks control (a Lockbox) or a restricted account maintained with Bank (the Collections Account), pursuant to the terms of such lockbox and account agreements as Bank shall reasonably request from time to time (the Lockbox Agreements). Borrower shall thereafter use the Lockbox and Collections Account address as the remit to and payment address for all proceeds of Accounts. Thereafter, if Borrower receives any amount despite such instructions, Borrower shall immediately deliver such payment to Bank in the form received, except for an endorsement to the order of Bank and, pending such delivery, shall hold such payment in trust for Bank. Bank shall credit all amounts deposited into Lockbox or the Collections Account to Borrowers operating account maintained at Bank within two (2) Business Days after clearance of such deposits; provided however that upon an Event of Default that is continuing, Bank may, at its option credit all or any portion of amounts paid into the Collections Account first against any amounts owing to Bank, and then any remaining balance of such amount shall be credited to Borrowers operating account maintained at Bank. Bank may, in its sole discretion after the occurrence of an Event of Default that is continuing, send requests for verification of Accounts or notify Borrowers account debtors of the assignment of such Accounts to Bank, and take such other actions as set forth in the Lockbox Agreements. Upon Banks request, Borrower shall cause any third-party payment processors to execute and deliver an acknowledgment and payment direction letter in form and substance reasonably satisfactory to Bank.
(b) Bank shall only deliver a Lockbox Notice to Borrower if (i) an Event of Default has occurred that is continuing or (ii) if the result of dividing (x) the sum of Borrowers unrestricted cash at Bank plus the amount available for borrowing under the Revolving Facility (assuming for this purpose that no default or Event of Default is then continuing) by (y) the absolute value of the average of Borrowers monthly Adjusted EBDA for the trailing three month period (Remaining Months Liquidity), measured as of the last day of the most recently completed month, is less than six (6).
(c) If, within forty-five (45) days following the delivery of the Lockbox Notice, Bank receives evidence satisfactory to Bank that Borrower has received sufficient cash proceeds from the sale and issuance of its equity securities (or convertible notes that constitute Subordinated Debt) such that the Remaining Months Liquidity is nine (9) or greater, then Borrower need not comply with subsection (a) above.
E. Exhibit D to the Loan and Security Agreement is replaced in its entirety with the Exhibit D attached hereto.
3. CONSISTENT CHANGES . The Loan Documents are each hereby amended wherever necessary to reflect the changes described above.
4. NO DEFENSES OF BORROWER/GENERAL RELEASE . Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under Loan Documents. Each of Borrower and its affiliates (each, a Releasing Party) acknowledges that Bank would not enter into this Loan and Security Modification Agreement without Releasing Partys assurance that it has no claims against Bank or any of Banks officers, directors, employees or agents. Except for the obligations arising hereafter under this Loan and Security Modification Agreement, each Releasing Party releases Bank, and each of Banks and entitys officers, directors and employees from any known or unknown claims that Releasing Party now has against Bank of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not
limited to any claims arising out of or related to the Loan and Security Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Loan and Security Modification Agreement and the other Loan Documents, and/or Banks actions to exercise any remedy available under the Loan Documents or otherwise.
5. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Loan Documents, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Loan Documents. Borrower represents and warrants that the representations and warranties contained in the Loan and Security Agreement are true and correct as of the date of this Loan and Security Modification Agreement (in each case other than representations and warranties made as of a specific date, in which case such date) and that, other than the Covenant Defaults, no Event of Default has occurred and is continuing. Except as expressly modified pursuant to this Loan and Security Modification Agreement, the terms of the Loan Documents remain unchanged and in full force and effect. Banks agreement to modifications to the existing Loan Documents pursuant to this Loan and Security Modification Agreement in no way shall obligate Bank to make any future modifications to the Loan Documents. Nothing in this Loan and Security Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan and Security Modification Agreement. The terms of this paragraph apply not only to this Loan and Security Modification Agreement, but also to any subsequent loan and security modification agreements.
5. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER: REFERENCE PROVISION . This Loan and Security Modification Agreement constitutes a Loan Document as defined and set forth in the Loan and Security Agreement, and is subject to Sections 11 and 12 of the Loan and Security Agreement, which are incorporated by reference herein.
6. CONDITIONS PRECEDENT . As a condition to the effectiveness of this Loan and Security Modification Agreement, Bank shall have received, in form and substance reasonably satisfactory to Bank, the following:
(a) payment of a facility fee with respect to the Revolving Facility set forth above, plus an amount equal to all Bank Expenses incurred through the date hereof;
(b) corporate resolutions and incumbency certificate; and
(c) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
7. COUNTERSIGNATURE . This Loan and Security Modification Agreement shall become effective only when executed by Bank and Borrower.
[SIGNATURE PAGE FOLLOWS]
I N W ITNESS W HEREOF , the parties here to have caused this Loan and Security Modification Agreement to be executed on the date first above written.
BORROWER: | BANK: | |||||||||
EVERQUOTE, INC. | WESTERN ALLIANCE BANK | |||||||||
By: | /s/ John Wagner | By: | /s/ Darren Gastrock | |||||||
Name: | John Wagner | Name: | Darren Gastrock | |||||||
Title: | Chief Financial Officer | Title: | VP |
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: | WESTERN ALLIANCE BANK | |
FROM: | EVERQUOTE, INC, |
The undersigned authorized officer of EVERQUOTE, INC. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement), (i) Borrower is in compliance for the period ending with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct as of the date hereof (in each case other than representations and warranties made as of a specific date, in which case such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenant |
Required |
Complies |
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A/R & A/P Agings | Monthly within 30 days | Yes No | ||||||
Borrowing Base Certificate | Monthly within 30 days | Yes No | ||||||
Monthly financial statements | Monthly within 30 days | Yes No | ||||||
Compliance Certificate | Monthly within 30 days | Yes No | ||||||
Annual audited financial statements | FYE within 180 days | Yes No | ||||||
Annual operating budget, sales projections and operating plans approved by board of directors | Annually no later than 30 days after the beginning of each fiscal year or Board approval | Yes No | ||||||
A/R Audit | Initial and Annual | Yes No | ||||||
Deposit balances with Bank | $ | |||||||
Deposit balance outside Bank | $ | |||||||
Financial Covenant |
Required |
Actual |
Complies |
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Minimum Asset Coverage Ratio | 1.50 : 1.00 | :1.00 | Yes No |
Comments Regarding Exceptions: See Attached. | ||
Sincerely, | ||
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SIGNATURE | ||
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TITLE | ||
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DATE |
CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATE
Borrower: |
EVERQUOTE, INC. |
I, the undersigned Secretary or Assistant Secretary of EverQuote, Inc. (the Corporation), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and complete copies of the Certificate of lncorporation and Bylaws of the Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the board of directors of the Corporation, duly called and held, at which a quorum was present and voting (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, (whose actual signatures are shown below which actual signatures apply only with respect to the secretary certification provided herein and were not themselves included in the resolutions approved by the board of directors):
NAMES | POSITIONS | ACTUAL SIGNATURES | ||
Seth Birnbaum |
Chief Executive Officer |
/s/ Seth Birnbaum |
||
Tomas Revesz |
Chief Technology Officer |
/s/ Tomas Revesz |
||
John Wagner |
Chief Financial Officer |
/s/ John Wagner |
acting for and on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered:
Borrow Money . To borrow from time to time from Western Alliance Bank (Bank), on such terms as may be agreed upon between the officers, employees, or agents of the Corporation and Bank, such sum or sums of money in a principal amount not to exceed $15,000,000, and on such terms and conditions, as in their judgment should be borrowed, without limitation.
Execute Loan Documents. To execute and deliver to Bank that certain Loan and Security Modification Agreement dated as of March 16, 2018 and any other agreement, document or instrument entered into between Corporation and Bank in connection with the Loan and Security Agreement dated August 11, 2014, all as amended or extended from time to time (collectively, the Loan Documents), and also to execute and deliver to Bank one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for the Loan Documents, or any portion thereof.
Grant Security. To grant a security interest to Bank in the Collateral described in the Loan Documents, which security interest shall secure all of the Corporations Obligations, as described in the Loan Documents.
Negotiate Items . To draw, endorse, and discount with Bank all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the account of the Corporation with Bank, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable.
Letters of Credit . To execute letter of credit applications and other related documents pertaining to Banks issuance of letters of credit.
F/X Contracts . To enter into with the Bank any agreements in connection with foreign exchange transactions.
Cash Management . To enter into with the Bank any agreements in connection with cash management services.
Corporate Credit Cards . To execute corporate credit card applications and agreements and other related documents pertaining to Banks provision of corporate credit cards.
Further Acts . In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Bank may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of the Corporations agreements or commitments in effect at the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on March 16, 2018 and attest that the signatures set opposite the names listed above are their genuine signatures.
CERTIFIED TO AND ATTESTED BY: | ||
By: |
/s/ David Mason |
|
Name: | David Mason | |
Title: | General Counsel and Secretary |
Exhibit 10.12
AdHarmonics, Inc.
100 Quannapowitt Parkway, Suite 205
Wakefield, MA 01880
August 27, 2010
Seth Birnbaum
Re: | Offer of Employment by AdHarmonics, Inc. |
Dear Seth,
I am very pleased to confirm my offer to you of employment with AdHarmonics, Inc. (the Company). You will report to the Board of Directors in the position of Chief Executive Officer, an exempt position. I look forward to your acceptance of this offer and would like you to begin with us on August 27, 2010. A summary of the terms of this offer and the benefits currently provided by the Company are as follows:
1. Duties . Your duties to the Company shall be the typical duties of a Chief Executive Officer in a start-up company, to be further defined once you join the Company, and such other duties as may be determined by the Board from time to time.
2. Salary . Your salary will be $4,795.00 per semi-monthly pay period, which equates to $115,080.00 per year.
3. Bonuses . You will be paid a sign-on bonus (at the time of your first regular paycheck) equal to $6,250.00. This bonus will be subject to recapture should you voluntarily leave the Company prior to November 30, 2010. In addition, you will receive $18,750 in additional bonuses (payable in three equal installments on December 15, 2010, March 15, 2011 and June 15, 2011) based on continued full-time employment.
4. Benefits . You will be eligible to participate in regular health insurance and other employee benefit plans established by the Company for its employees. You will be entitled to three weeks, which is equal to 15 working days, of vacation during the calendar year. The amount of vacation time available to you during your first year is determined by proration based on the number of full months of employment completed by you during the year. You will be entitled to two weeks, which is equal to ten working days, of sick time during the calendar year. The amount of sick time available to you during your first year is determined by proration based on the number of full months of employment completed by you during the year. You will be entitled to ten holidays, including nine designated days (New Years Day, Presidents Day, Stock Market Spring Holiday, Memorial Day, Independence Day, Labor Day, Columbus Day, Thanksgiving Day, and Christmas Day) and one day to be used at your choice (the Floating Holiday).
1
5. Stock Incentive . A recommendation will be submitted to the board of directors of the Company to grant you options to acquire 92,310 shares of common stock with a strike price equal to the fair market value of the Companys common stock on the day of the grant. 92,310 shares is intended to equal 4% of the total outstanding shares and options after the anticipated investment in the Company by Adverplex and the issuance of options to two other employees. It equals 8.4% of the current outstanding shares of the Company. The stock options will be subject to the terms of the AdHarmonics 2008 Stock Incentive Plan and a stock option grant document. Vesting will occur over a four-year period with a one-year cliff (25% vested after 12 months with 2.083% vesting at the end of each month thereafter). In addition, upon a change of control of the Company, if your vested option total does not equal one half of your total options under this grant, the difference between one-half of your total options and your total vested options shall immediately vest. The number of 92,310 options is subject to adjustment up or down (to 4% of total outstanding stock and options, including your options) should Adverplexs equity holding after its investment be different than anticipated.
6. Expenses : The Company will reimburse you for reasonable travel and other business expenses that you may incur in the performance of your duties, subject to the Companys policies.
7. At Will Employment . While I look forward to a long and profitable relationship, should you decide to accept this offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause.
8. Acceptance . If you decide to accept our offer, please sign the enclosed copy of this letter in the space indicated and return it to me. Before joining the Company you will be required to sign the Companys standard agreement regarding inventions, confidentiality and non-competition. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me.
Sincerely, |
/s/ David Blundin |
David Blundin |
Chairman of the Board of Directors |
2
I have read and understood the above information and the Companys offer of employment as outlined above and hereby acknowledge, accept and agree to the terms as set forth above. I will begin employment on August 27, 2010. I confirm that, to the best of my knowledge and belief, there is no contractual obligation to any previous employer which would prevent me from giving my full efforts to the Company (other than and to the extent set forth herein) or prevent the Company from benefiting from and retaining exclusive rights to any ideas or products which I may develop during my employment by the Company. I also acknowledge that my employment relationship with the Company is considered to be employment-at-will and may be terminated by either the Company or me, with or without cause or notice.
By: |
/s/ Seth Birnbaum |
|
Seth Birnbaum |
Date: 08/27/2010
3
Exhibit 10.13
July 31, 2017
Jayme Mendal
Re: | Offer of Employment by EverQuote, Inc. |
Dear Jayme,
I am very pleased to confirm my offer to you of employment with EverQuote, Inc. (the Company) in the position of Chief Revenue Officer, an exempt position. I look forward to your acceptance of this offer and would like you to begin with us on September 4, 2017. A summary of the terms of this offer and the benefits currently provided by the Company are as follows:
1. Salary . Your base salary will be $8,333.33 per semi-monthly pay period, which equates to $200,000 per year. You will also be eligible for a target bonus of $200,000, to be paid out quarterly, based on the achievement of agreed upon targets, including 30% annual revenue growth. The details of this plan will be finalized through mutual collaboration within your first 90 days of employment. In addition, you will be paid a sign-on bonus of $39,200.00, less deductions required by law. This amount will be subject to recapture should you voluntarily leave the Company prior to the 90-day anniversary of your start date.
2. Benefits . You will be eligible to participate in regular health insurance and other employee benefit plans established by the Company for its employees. EverQuote has an Open PTO (Paid Time Off) policy, in which each employee is afforded the flexibility to take vacation as necessary. We do not track or limit employee vacation times or sick days take the time you need to operate at peak performance.
3. Stock Incentive . A recommendation will be submitted to the board of directors of the Company to grant you options to acquire 33,360 shares of common stock, with a strike price equal to the fair market value of the Companys common stock on the day of the grant. The stock options will be subject to the terms of the Companys Amended and Restated 2008 Stock Incentive Plan (the Equity Plan) and a stock option grant document. Vesting will occur over a four-year period with a one-year cliff (25% vested after 12 months with 2.083% vesting at the end of each month thereafter). Notwithstanding the foregoing, in the event that the Company closes a Series C financing transaction or there is a Sale Event (as defined in the Equity Plan), then the one-year cliff vesting shall not apply, and you shall vest monthly in your award starting on the first full month following your date of hire. In addition, upon a Sale Event you shall immediately accelerate in your vesting such that 50% of your then unvested shares shall accelerate and vest as of the Sale Event.
EverQuote, Inc ., 210 Broadway, Cambridge, MA 02139
4. At Will Employment . While I look forward to a long and profitable relationship, should you decide to accept this offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause.
5. Acceptance . If you decide to accept our offer, please sign the enclosed copy of this letter in the space indicated and return it to me. This offer will expire at 5:00 PM on August 4, 2017. Before joining the Company you will be required to sign the Companys Standard Agreement Regarding Inventions, Confidentiality and Non-competition. You will also be required to pass a standard background check. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me.
Sincerely, |
/s/ Seth Birnbaum |
Seth Birnbaum, CEO |
I have read and understood the above information and the Companys offer of employment as outlined above and hereby acknowledge, accept and agree to the terms as set forth above. I will begin employment on August 28, 2017. I confirm that, to the best of my knowledge and belief, there is no contractual obligation to any previous employer which would prevent me from giving my full efforts to the Company (other than and to the extent set forth herein) or prevent the Company from benefiting from and retaining exclusive rights to any ideas or products which I may develop during my employment by the Company. I also acknowledge that my employment relationship with the Company is considered to be employment-at-will and may be terminated by either the Company or me, with or without cause or notice.
By: |
/s/ Jayme Mendal |
|
Jayme Mendal |
Date: July 31, 2017
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the Agreement ) is executed as of this 3rd day of February 2014, by and between AdHarmonics, Inc., a Delaware corporation (the Company ), and David Mason, an individual ( Employee ).
In consideration of the premises and the mutual agreements and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Company and Employee,
IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I
EMPLOYMENT
1.1 Position and Duties . Employee shall be employed in the position of General Counsel or such other executive position as may be assigned from time to time by the Companys Chief Executive Officer; provided that any executive position that does not also include continuing in the role of General Counsel will require the consent of the Employee. In such capacity, Employee shall be subject to the authority of, and shall report to, the Companys Chief Executive Officer. Employees duties and responsibilities shall include those customarily attendant to Employees position and such other duties and responsibilities as may be assigned from time to time by the Chief Executive Officer. Employee shall devote Employees entire business time, loyalty, attention and energies exclusively to the business interests of the Company while employed by the Company, and shall perform his duties and responsibilities diligently and to the best of his ability.
1.2 Other Documents . On or prior to the date hereof, the Employee will execute and deliver to the Company the Standard Employee Agreement Regarding Inventions Confidentiality and Non-Competition as amended in June 2013 attached as Exhibit C hereto.
ARTICLE II
COMPENSATION AND OTHER BENEFITS
2.1 Base Salary . The Company shall pay Employee an initial annual salary of $250,000 ( Base Salary ), payable in accordance with the normal payroll practices of the Company. The Employees Base Salary will be reviewed and be subject to adjustment from time to time by the Board of Directors or its Compensation Committee at their discretion in accordance with the Companys annual review policy.
2.2 Performance Bonus . Intentionally Left Blank.
2.3 IPO Bonus . Intentionally Left Blank.
2.4 Benefit Plans . Employee will be eligible to participate in the Companys retirement plans that are qualified under Section 401 (k) of the Internal Revenue Code of 1986, as amended (the Code ), and in the Companys welfare benefit plans that are generally applicable to all executive employees of the Company (the Plans ), in accordance with the terms and conditions thereof. A brief description of the Companys current benefits is contained in Exhibit A hereto.
2.5 Vacation . Employee shall be entitled to the number of vacation days in the calendar year based on the Companys general vacation policy, subject to and to be taken in accordance with the Companys general vacation policy for employees.
2.6 Expenses . The Company shall reimburse Employee for all authorized and approved expenses incurred in the course of the performance of Employees duties and responsibilities pursuant to this Agreement and consistent with the Companys policies with respect to travel, entertainment and miscellaneous expenses, and the requirements with respect to the reporting of such expenses.
2.7 Withholdings . All payments to be made by the Company hereunder will be subject to any withholding requirements.
ARTICLE III
TERMINATION
3.1 Right to Terminate; Automatic Termination .
(a) Termination by Company Without Cause . Subject to Section 3.2, the Company may terminate Employees employment and all of the Companys obligations under this Agreement at any time and for any reason.
(b) Termination by Employee for Good Reason . Subject to Section 3.2, Employee may terminate his employment obligation hereunder (but not his obligations under Article IV hereof) for Good Reason (as hereinafter defined) if Employee gives written notice thereof to the Company within thirty (30) days of the event (s)he deems to constitute Good Reason (which notice shall specify the grounds upon which such notice is given) and the Company fails, within thirty (30) days of receipt of such notice, to cure or rectify the grounds for such Good Reason termination set forth in such notice. Good Reason shall mean any of the following; (i) a material violation by the Company of this Agreement; (ii) if such Employee is an executive officer of the Company, demotion of the Employee, without the Employees prior consent, to a position that does not include significant managerial responsibilities; (iii) reduction of the Employees then-current material responsibilities, which shall include but are not limited to (A) the management of internal and outside legal counsel, (B) the oversight and management of litigation, intellectual property, regulatory and transactional matters, (C) corporate secretarial functions, if and when assumed, and (D) corporate governance and compliance matters; (iv) reduction in the Employees base salary, other than in connection with, and substantially proportionate to, a general salary reduction program that applies to the Companys similar class of officers or employees; or (v) a relocation of the Company that requires the Employee to commute to an office that is more than sixty (60) miles away from the Employees then current place of employment.
(c) Termination by Company For Cause . Subject to Section 3.2, the Company may terminate Employees employment and all of the Companys obligations under this Agreement at any time For Cause (as defined below) by giving notice to Employee stating the basis for such termination, effective immediately upon giving such notice or at such other time thereafter as the Company may designate. For Cause shall mean any of the following: (i) Employees willful and continued failure to substantially perform the reasonably assigned duties with the Company which are consistent with Employees position and job description referred to in this Agreement, other than any such failure resulting from incapacity due to physical or mental illness, after a written notice is delivered to Employee by the Board of Directors of the Company which specifically identifies the manner in which Employee has not substantially performed the assigned duties and allowing Employee thirty (30) days after receipt by Employee of such notice to cure such failure to perform, (ii) material breach of this or any other written agreement between Employee and the Company which is not cured within thirty (30) days after receipt by the Employee from the Company of written notice of such breach, (iii) any material violation of any written policy of the Company which is not cured within thirty (30) days after receipt by Employee from the Company of written notice of such violation, (iv) Employees willful misconduct which is materially and demonstrably injurious to the Company, (v) Employees conviction by a court of competent jurisdiction of, or his pleading guilty or nolo contendere to, any felony, or (vi) Employees commission of an act of fraud, embezzlement, or misappropriation against the Company or any breach of fiduciary duty or breach of the duty of loyalty, including, but not limited to, the offer, payment, solicitation or acceptance of any unlawful bribe or kickback with respect to the Companys business. For purposes of this paragraph, no act, or failure to act, on Employees part shall be considered willful unless done, or omitted to be done, in knowing bad faith and without reasonable belief that the action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, expressly authorized by a resolution duly adopted by the Board of Directors or based upon the written advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of the Company. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated For Cause unless and until there shall have been delivered to Employee a copy of a resolution, duly adopted by the Board of Directors at a meeting of the Board called and held for such purpose (after reasonable notice to Employee and an opportunity for Employee, together with Employees counsel, to be heard before the Board), finding that in the good faith opinion of the Board of Directors Employee committed the conduct set forth above in (i), (ii), (iii), (iv), (v) or (vi) of this Section and specifying the particulars thereof in detail.
(d) Termination Upon Death or Disability . Subject to Section 3.2, Employees employment and the Companys obligations under this Agreement shall terminate: (i) automatically, effective immediately and without any notice being necessary, upon Employees death; and (ii) in the event of the disability of Employee, by the Company giving notice of termination to Employee. For purposes of this Agreement., disability means the inability of Employee, due to a physical or mental impairment, for ninety (90) days (whether or not consecutive) during any period of 360 days, to perform, with reasonable accommodation, the essential functions of the work contemplated by this Agreement. In the event of any dispute as to whether Employee is disabled, the matter shall be determined by the Companys Board of Directors in consultation with a physician selected by the Companys health or disability insurer or another physician mutually satisfactory to the Company and the Employee. The Employee shall cooperate with the efforts to make such determination or be subject to immediate discharge. Any such determination shall be conclusive and binding on the parties. Any determination of disability under this Section 3.1 is not intended to alter any benefits any party may be entitled to receive under any long-term disability insurance policy carried by either the Company or Employee with respect to Employee, which benefits shall be governed solely by the terms of any such insurance policy. Nothing in this subsection shall be construed as limiting or altering any of Employees rights under State workers compensation laws or State or federal Family and Medical Leave laws.
3.2 Rights Upon Termination .
(a) Section 3.1(a) and 3.1(b) Termination . If Employees employment terminates pursuant to Section 3.l(a) or 3.1(b) hereof, Employee shall have no further rights against the Company hereunder, except for the right to receive, subject to the Employees execution of a release and waiver in form satisfactory to the Company in the case of clauses (ii), (iii), and (v) below within sixty (60) days of termination, (i) any unpaid Base Salary and the value of any accrued but unused vacation, (ii) acceleration of unvested equity held by Employee as of termination pursuant to the acceleration terms of any stock option agreement or equity award agreement with the Company, (iii) payment of Base Salary for twelve (12) months (the Severance Period ), payable in accordance with the normal payroll practices of the Company, (iv) reimbursement of expenses to which Employee is entitled under Section 2.5 hereof, and (v) continuation of the welfare benefit plans of the Company as detailed in Section 2.3 hereof for the duration of the Severance Period.
(b) Section 3.1(c) and 3.1(d) Termination . If Employees employment is terminated pursuant to Sections 3.l(c) or 3.1(d) hereof, or if Employee quits employment (other than for Good Reason) notwithstanding the terms of this Agreement, Employee and, in the case of termination on account of death, the Employees estate shall have no further rights against the Company hereunder, except for the right to receive, following execution of a release and waiver in form satisfactory to the Company in the case of clause (iii) below within sixty (60) days of termination, (i) any unpaid Base Salary, (ii) the value of any accrued but unused vacation, (iii) in the case of Section 3.1(d) hereof, whatever rights as to equity as Employee may have pursuant to the any stock option agreement or equity award agreement with the Company and (iv) reimbursement of expenses to which Employee is entitled under Section 2.5 hereof.
ARTICLE IV
CONFIDENTIALITY; NON-COMPETITION; NON-SOLICITATION
4.1 Confidentiality . Employee agrees to abide by the Standard Employee Agreement Regarding Inventions, Confidentiality and Non-Competition Agreement, as amended, which is attached as Exhibit C and incorporated by reference herein.
4.2 Non-Competition . Employee agrees to abide by the Standard Employee Agreement Regarding Inventions, Confidentiality and Non-Competition Agreement, as amended, which is attached as Exhibit C and incorporated by reference herein.
4.3 Non-solicitation . Employee agrees to abide by the Standard Employee Agreement Regarding Inventions, Confidentiality and Non-Competition Agreement, as amended, which is attached as Exhibit C and incorporated by reference herein.
4.4 Return of Documents . Immediately upon termination of employment, Employee will return to the Company, and so certify in writing to the Company, all the Companys or any of its subsidiaries papers, documents and things, including information stored for use in or with computers and software applicable to the Companys and its subsidiaries business (and all copies thereof), which are in Employees possession or under Employees control, regardless whether such papers, documents or things contain Confidential Information or Trade Secrets.
4.5 No Conflicts . To the extent that they exist, Employee will not disclose to the Company or any of its subsidiaries any of Employees previous employers confidential information or trade secrets. Further, Employee represents and warrants that Employee has not previously assumed any obligations inconsistent with those of this Agreement and that employment by the Company does not conflict with any prior obligations to third parties. In addition, Employee and the Company agree that it is important for any prospective employer to be aware of this Agreement, so that disputes concerning this Agreement can be avoided in the future. Therefore, the Employee agrees that, following termination of employment with the Company, the Company may forward a copy of Article IV of this Agreement (and any related Exhibits hereto) to any future prospective or actual employer, and the Employee releases the Company from any claimed liability or damage caused to the Employee by virtue of the Companys act in making that prospective or actual employer aware of Article IV of this Agreement (and any related Exhibits hereto).
4.6 Agreement on Fairness . Employee acknowledges that: (i) this Agreement has been specifically bargained between the parties and reviewed by Employee, (ii) Employee has had an opportunity to obtain legal counsel to review this Agreement, and (iii) the covenants made by and duties imposed upon Employee hereby are fair, reasonable and minimally necessary to protect the legitimate business interests of the Company, and such covenants and duties will not place an undue burden upon Employees livelihood in the event of termination of Employees employment by the Company and the strict enforcement of the covenants contained herein.
4.7 Equitable Relief and Remedies . Employee acknowledges that any breach of this Agreement will cause substantial and irreparable harm to the Company for which money damages would be an inadequate remedy. Accordingly, notwithstanding the provisions of Article V below, the Company shall in any such event be entitled to seek injunctive and other forms of equitable relief to prevent such breach and the prevailing party shall be entitled to recover from the other, the prevailing partys costs (including, without limitation, reasonable attorneys fees) incurred in connection with enforcing this Agreement, in addition to any other rights or remedies available at law, in equity, by statute or pursuant to Article V below.
ARTICLE V
AGREEMENT TO SUBMIT ALL EXISTING OR FUTURE DISPUTES
TO BINDING ARBITRATION
The Company and Employee agree that any controversy or claim arising out of or related to this Agreement or Employees employment with or termination by the Company that is not resolved by the parties shall be settled by arbitration administered by the American Arbitration Association under its National Rules for the Resolution of Employment Disputes. Said arbitration shall be conducted in Boston, Massachusetts. The parties further agree that the arbitrator may resolve issues of contract interpretation as well as law and award damages, if any, to the extent provided by the Agreement or applicable law. The parties agree that the costs of the arbitrators services shall be borne by the Company. The parties further agree that the arbitrators decision will be final and binding and enforceable in any court of competent jurisdiction. In addition to the A.A.A.s Arbitration Rules and unless otherwise agreed to by the parties, the following rules shall apply:
(a) Each party shall be entitled to discovery exclusively by the following means: (i) requests for admission, (ii) requests for production of documents, (iii) up to fifteen (15) written interrogatories (with any subpart to be counted as a separate interrogatory), and (iv) depositions of no more than six individuals.
(b) Unless the arbitrator finds that delay is reasonably justified or as otherwise agreed to by the parties, all discovery shall be completed, and the arbitration hearing shall commence within five months after the appointment of the arbitrator.
(c) Unless the arbitrator finds that delay is reasonably justified, the hearing will be completed, and an award rendered within thirty (30) days of commencement of the hearing.
The arbitrators authority shall include the ability to render equitable types of relief and, in such event, any aforesaid court may enter an order enjoining and/or compelling such actions or relief ordered or as found by the arbitrator. The arbitrator also shall make a determination regarding which partys legal position in any such controversy or claim is the more substantially correct (the Prevailing Party ) and the arbitrator shall require the other party to pay the legal and other professional fees and costs incurred by the Prevailing Party in connection with such arbitration proceeding and any necessary court action.
Notwithstanding the foregoing provisions of this Article V, the parties expressly agree that a court of competent jurisdiction may enter a temporary restraining order or an order enjoining a breach of Article IV of this Agreement without submission of the underlying dispute to an arbitrator. Such remedy shall be cumulative and nonexclusive, and shall be in addition to any other remedy to which the parties may be entitled.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notices . Any and all notices provided for in this Agreement shall be given in writing and shall be deemed given to a party at the earlier of (i) when actually delivered to such party, or (ii) when mailed to such party by registered or certified mail (return receipt requested) or sent to such party by courier, confirmed by receipt, and addressed to such party at the address designated below for such party as follows (or to such other address for such party as such party may have substituted by notice pursuant to this Section 6.1):
(a) If to the Company: | AdHarmonics, Inc. | |||
210 Broadway 02139 | ||||
Cambridge, MA | ||||
Attention: Chief Executive | ||||
Officer | ||||
(b) If to Employee: |
David Mason |
|||
32 Bonney Terrace |
||||
Fairfield, CT 06824 |
6.2 Entire Agreement . This Agreement, together with the exhibits hereto, contains the entire understanding and the full and complete agreement of the parties and supersedes and replaces any prior understandings and agreements among the parties with respect to the subject matter hereof (including, without limitation, Employees Offer Letter dated December 23, 2013, as amended from time to time, between the Company and Employee).
6.3 Amendment . This Agreement may be altered, amended or modified only in a writing, signed by both of the parties hereto. Headings included in this Agreement are for convenience only and are not intended to limit or expand the rights of the parties hereto. References to Sections herein shall mean sections of the text of this Agreement, unless otherwise indicated.
6.4 Assignability . This Agreement and the rights and duties set forth herein may not be assigned by either of the parties without the express written consent of the other party. This Agreement shall be binding on and inure to the benefit of each party and such partys respective heirs, legal representatives, successors and assigns.
6.5 Severability . If any court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then such invalidity or unenforceability shall have no effect on the other provisions hereof, which shall remain valid, binding and enforceable and in full force and effect, and such invalid or unenforceable provision shall be construed in a manner so as to give the maximum valid and enforceable effect to the intent of the parties expressed therein.
6.6 Waiver of Breach . The waiver by either party of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party.
6.7 Governing Law; Jurisdiction; Construction . This Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to any rules of construction that would require application of the laws of another jurisdiction. Any legal proceeding related to this Agreement and permitted under Section 4.7 and
Article V hereof must be litigated in an appropriate Massachusetts state or federal court, and both the Company and the Employee hereby consent to the exclusive jurisdiction of the Commonwealth of Massachusetts for this purpose. The parties agree that they have been represented by counsel during the negotiation and execution of this Agreement, and accordingly each party waives the application of any law, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party responsible for the drafting thereof.
6.8. Effective Date . The terms and conditions of this Agreement shall be effective as of the date hereof.
6.9. Tax Compliance .
(a) The Company may withhold from any amounts payable hereunder any amounts required to be withheld under federal, state or local law and any other deductions authorized by Employee. The Company and the Employee agree that they will execute any and all amendments to this Agreement as they mutually agree in good faith may be necessary to ensure compliance with the provisions of Section 409A (together with any implementing regulations, Section 409A ) of the Code while preserving insofar as possible the economic intent of the respective provisions, so that Employee will not be subject to any tax (including interest and penalties) under Section 409A.
(b) For purposes of Section 409A, the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.
(c) With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Employee, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (1) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code; (2) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (3) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.
(d) Notwithstanding anything to the contrary in this Agreement, if Employee is a specified employee as determined pursuant to Section 409A as of the date of Employees separation from service as defined in Treasury Regulation Section 1.409A-1(h) (or any successor regulation) and if any payments or entitlements provided for in this Agreement constitute a deferral of compensation within the meaning of Section 409A and cannot be paid or provided in the manner provided herein without subjecting Employee to additional tax, interest or penalties under Section 409A, then any such payment or entitlement which is payable during the first six months following Employees separation from service shall be paid or provided to Employee in a cash lump-sum on the first business day of the seventh calendar month immediately following the month in which Employees separation from service occurs or, if earlier, upon the Employees death. In addition, any payments or benefits due hereunder upon a termination of Employees employment which are a deferral of compensation within the meaning of Section 409A shall only be payable or provided to Employee (or Employees estate) upon a separation from service as defined in Section 409A. Finally, for the purposes of this Agreement, amounts payable under Section 3.2 shall be deemed not to be a deferral of compensation subject to Section 409A to the extent provided in the exceptions in Treasury Regulation Sections 1.409A-1(b)(4) (short-term deferrals) and (b)(9) (separation pay plans, including the exception under subparagraph (iii)) and other applicable provisions of Treasury Regulation Section 1.409A-1A-6.
(e) The payment of any amounts otherwise payable on account of termination of employment under this Agreement which constitute deferred compensation within the meaning of Section 409A and which are subject (among other conditions, if any) to a release of claims may be delayed at the discretion of the Company for up to sixty (60) days following termination of employment, without regard to whether or when Employees release is delivered and becomes irrevocable (an Effective Release). Regardless of any payment, however, all such amounts remain conditioned on an Effective Release such that if Employee fails to deliver (or revokes) his or his release he or she will forfeit and must immediately return such amounts on the Companys demand.
[ Remainder of Page Intentionally Left Blank ]
IN WITNESS WHEREOF , the parties have executed this Agreement as of the day and year written above.
COMPANY: |
||
ADHARMONICS, INC. |
||
By: |
/s/ Seth Birnbaum |
|
Title: |
Chief Executive Officer |
|
EMPLOYEE: |
||
/s/ David Mason |
||
David Mason |
Exhibits :
Exhibit A |
Summary of Welfare Benefit Plans |
|
Exhibit B |
Intentionally left blank |
|
Exhibit C |
Standard Employee Agreement Regarding Inventions, Confidentiality and Non-Competition |
Exhibit A
Description of Current Benefits
Medical Insurance
Dental Insurance
Exhibit B
Intentionally left blank
Exhibit C
Standard Employee Agreement Regarding Inventions, Confidentiality and Non-Competition
See Attached
Exhibit 21.1
List of Subsidiaries
None.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of EverQuote, Inc. of our report dated March 30, 2018 relating to the financial statements of EverQuote, Inc., which appears in this Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
June 1, 2018